Collapse of the American Economy?

[Brainwalter]

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finally, what motivation does the BEA, BLS, or FED have to misstate inflation?

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Social security and I'm guessing other payments are indexed to inflation, so if the feds understate inflation then they pay less in entitlements. Also they may just wish to understate the negative consequences of their monetary policies.

[kimchi]

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Does anyone else see a future doomsday scenerio? How would you invest for it?

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This is so awful I wouldn't even address it. The world economy tanks at the first sign of a US hiccup. If your doomsday scenario happens there is no global economy.

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This isn't true. It is the world economy that has been supporting the US economy - especially Asian exporters.

Sure if the US economy tanks, there will be a lot of global financial restructuring/panic, but other countries will benefit.

I've been to many countries in Asia and most that [censored] they send abroad can't be bought in the country of manufacture because they currently get a better price for export.

This will turn around as the $US continues to slide.

Most asian nations have a vast growing consumer class and they are more than capable of creating their own consumer market instead of allowing financially illiterate Americans to put it all on plastic.

I sincerely hope the US economy doesn't tank as it will be a significant globally destabilising force.

If it does, it's important to be positioned correctly. Canada, Australia and Asia, I believe, are best positioned to benefit.

[The once and future king]

Inflation+Credit Crunch FTW.

Housing Bubble = POP
Stocks Bubble = Soon to be POP.

Both asset classes were/are high due to massive inflation (of the money supply) via money as debt.

[T50_Omaha8]

lol @ almost every post in this thread (besides the people who talked about the need to adjust inflation for quality improvements)

lol @ thinking we might need guns to survive the economic collapse we're headed for

lol @ thinking you are 'hedging' against collapse of American currency by holding American bonds (or cash...LOL)

lol @ talking about the USD and it's historical change with the Euro as if we're some disastrous exception (Linky)

lol @ a $34trn medical shortfall

Hey guys, just keep listening to all the doomsday preaching BS on CNN and hanging on every word. They love getting your ratings.

[Jcrew]

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finally, what motivation does the BEA, BLS, or FED have to misstate inflation?

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Inflation is a stealth tax on savers. Just more $$$ for the government since it makes their fixed debt cheaper.

[DJSHAD0W]

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So when the Euro dropped 25-30% in 2 years (Jan 99 - late 2000) the Euro market collapsed? And when the GBP dropped almost 60% from 81-85 the British economy ceased to exist? I'm not saying things are looking good or bad Euro vs Dollar trend over 5-7 years doesn't seem like the best indicator.

Sorry, I just get annoyed when things that would shock the public seem to be used out of context.

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I am not talking about an economy / society disappearing because of a devalued currency... I was just talking about weakening relative to other countries / economies.

[DJSHAD0W]

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Second... is consumer goods are adjusted... takethis for example... one year a car costs 10000$ without air bag - next year the same model costs 11000$ but now the airbag is standard - the government agencies that figure inflation would assign lets say a 500$ value to the air bag so instead ofthe price increasing 10% it only "really" went up 5%.... that sort of stuff !!!! (This maybe a stupid example but I hope you see what I mean)

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I'm by no means a seasoned economist, but this sounds pretty reasonable to me. Let's make it something even simpler. One year a package of eggs contains 10 eggs, the next year it contains 12. Should you just use absolute numbers to calculate inflation? I think your method would confuse growth and inflation.

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Well there is a slight difference between our examples... if the car with air bag becomes the new lowest available model, the consumer will have to pay the extra for the airbag, so they have no choices not to buy the air bag and so the 5% increase that is hidden from inflation.

The egg example is funny... but it is happening in reverse, where things are sold in smaller packages for the same price i.e. 10 pack of candy bars for 1$, now they are mostly 8 packs for 1$....
(I am not saying we are going to crash tomorrow, all I am trying to say is that the government understates inflation, and trying to give a few examples)

[DcifrThs]

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finally, what motivation does the BEA, BLS, or FED have to misstate inflation?

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Inflation is a stealth tax on savers. Just more $$$ for the government since it makes their fixed debt cheaper.

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well, two people took the bait with this so i'll just field the latest of the 2 responses.

the BLS's inflation calculation is independent of the BEA and teh FED. the BEA is the only one where administrative pressures from the white house could influence reported figures.

and those figures still have to square with those computed with the FED and the BLS.

most obviously, FED policy depends on accurate reporting of inflation figures. without it, interest rates would be too low overall and the boom / bust cycle would be more severe than the ones we currently see.

government's ability to borrow cheaply is FAR more dependent upon demand for that debt than reported inflation figures. it isn't even remotely close either. a unit decline in demand for US securities would push up financing rates on those securities far more than a unit increase in reported inflation. now that is simplistic b/c the relationship is nonlinear (increase in demand for US govt debt might increase inflation through various economic mechanisms).

but faith in the US govt would fall if inflation would be reported and have to then be restated significantly down the line (demand for US sec's would fall substantially in this instance since that demand is based on the faith one has in the US govt's ability to repay...if it is found the govt is reporting figures to its advantage that faith would fall precipitously).

so i take strong issue with the argument that the US govt is influencing reporting of official inflation statistics to lower borrowing costs (or for most any other reason).

if you disagree (and think the govt does) please go through the logic in detail.

thanks,
Barron

[econophile]

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finally, what motivation does the BEA, BLS, or FED have to misstate inflation?

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Inflation is a stealth tax on savers. Just more $$$ for the government since it makes their fixed debt cheaper.

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if inflation is a tax on savers then the govt isn't making much off of US citizens since the average american is a debtor . . .

[The once and future king]

Start of the Credit Crunch.