Hiding a Recession

[The once and future king]

Hmm an alternative to the hiding hypothesis is that there has been massive inflation shown by reliable metrics.

Look at the housing market for example. This has inflated alot in the USA (till recently). Not saying that CPI isnt fudged to a high degree, just that it isnt a case of omfg where is all the new money going why aint it showing up on the radar. It went into assets etc of which housing would be a prime example,that definitely showed up on the radar.

[lehighguy]

And educational expenses, and medical expenses, and military expenses.

Let's not forget that the Chinese buy a lot of our inflation.

[Borodog]

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Hmm an alternative to the hiding hypothesis is that there has been massive inflation shown by reliable metrics.

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Oh, yes. I agree 100%. It's just that the inflation is showing up everywhere EXCEPT the CPI. I'm not saying that it is ONLY manipulation of economic data that is hiding monetary expansion.

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Look at the housing market for example. This has inflated alot in the USA (till recently). Not saying that CPI isnt fudged to a high degree, just that it isnt a case of omfg where is all the new money going why aint it showing up on the radar. It went into assets etc of which housing would be a prime example,that definitely showed up on the radar.

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Of course. This is what I've been saying all along. But that is, in fact, "hidden" from consumers, who are mainly interested in consumer prices. In fact, they think that a bubble in their stock portfolio or the value of their home is a good thing, at least until the bubble bursts.

Price inflation is also offset by productivity increases in certain sectors (see for example consumer electronics), and monetary inflation is also hidden offshore as foreign held dollar reserves, which also reduces pressure on the CPI, at least until that bubble bursts, which is now occuring.

[The once and future king]

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Hmm an alternative to the hiding hypothesis is that there has been massive inflation shown by reliable metrics.

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Oh, yes. I agree 100%. It's just that the inflation is showing up everywhere EXCEPT the CPI. I'm not saying that it is ONLY manipulation of economic data that is hiding monetary expansion.

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Look at the housing market for example. This has inflated alot in the USA (till recently). Not saying that CPI isnt fudged to a high degree, just that it isnt a case of omfg where is all the new money going why aint it showing up on the radar. It went into assets etc of which housing would be a prime example,that definitely showed up on the radar.

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Of course. This is what I've been saying all along. But that is, in fact, "hidden" from consumers, who are mainly interested in consumer prices. In fact, they think that a bubble in their stock portfolio or the value of their home is a good thing, at least until the bubble bursts.

Price inflation is also offset by productivity increases in certain sectors (see for example consumer electronics), and monetary inflation is also hidden offshore as foreign held dollar reserves, which also reduces pressure on the CPI, at least until that bubble bursts, which is now occuring.

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Im not sure but you seem to be having your cake and eating it. In that you are claiming that both Assets and the basket of stuff have both inflated massively.

I cant speak for the American consumer experience, but in Britain the housing bubble was/is even more insane than the USA with massive asset inflation, yet many of the items in the basket of stuff have become considerably cheaper.

Clothes, food and especially alcohol have become cheaper as have white goods plasma screen TVs and the like. Though much of this is changing as we speak with big spikes in the cost of food and alchohol predicted due to [censored] global harvests.

Much of this deflation has in fact been imported from China.

That said many everyday items have increased in cost, and the quoted CPI figure in Britain of 1.8% last month and 2.1% this month are laughable if one considers a realistic spectrum of stuff in the basket. Utilities are interesting with Gas and Electric both increasing well beyond 2% but the liberalization of land lines means phone calls have become a lot cheaper over the last few years. I wouldnt be surprised if my gas bill didnt go in the basket but my phone bill did.

That said I dont think we have 70s style inflation in the realistic basket of stuff, I am sure it is higher than the Gov stats but I would argue most of the inflation has gone into the rampant house bubble. Britain has about 1.4 trillion personal debt, most of that mortgage debt.

[Borodog]

toafk,

Not all prices increase, obviously. Technological progress and increasing productivity acts to offset the effects of monetary inflation on prices. That's what I'm saying; monetary inflation is "hidden" in lots of different places; some price inflation, but exported inflation to foreign reserves, increasing productivity, and temporal delay all act to mask the negative effects on consumers. Couple that with totally bogus CPI numbers . . .

[The once and future king]

Well in the 70s when basket of stuff inflation reached 27% in Britain the stock market lost 70% of its value over a two year period, and house prices didnt fare much better. Seems now that we have turned that situation on its head.

This would explain the phenomenon I have observed in the markets that taken to its pathologic extreme goes something like this:

"Scientists claimed to day that a galactic goat was 110% certain to eat 75% of the worlds population. In an effort to stave of financial instability and recession CBs cut interest rates by X%." "The markets reached record new highs today as they reacted positively to the news that CBs were to cut interest rates. Analysts claimed that the economies fundamentals were robust enough to see off any galactic goats"

In essence the markets have twigged that the system has be rigged to suppress basket inflation and then inflate assets. For Govs this creates/created a win win situation at least in the medium term. Consumers dont feel battered by inflation at the shops and all feel richer coz their house has quadrupled in value. Bankers can all collect gargantuan bonuses and the whole bull psychology feeds into the zietgiest of the whole country.

If things start to go wrong there is only one recourse, cut interest rates.

[DcifrThs]

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toafk,

Not all prices increase, obviously. Technological progress and increasing productivity acts to offset the effects of monetary inflation on prices. That's what I'm saying; monetary inflation is "hidden" in lots of different places; some price inflation, but exported inflation to foreign reserves, increasing productivity, and temporal delay all act to mask the negative effects on consumers. Couple that with totally bogus CPI numbers . . .

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what are your thoughts about my market discussion above?

Barron

[hmkpoker]

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toafk,

Not all prices increase, obviously. Technological progress and increasing productivity acts to offset the effects of monetary inflation on prices. That's what I'm saying; monetary inflation is "hidden" in lots of different places; some price inflation, but exported inflation to foreign reserves, increasing productivity, and temporal delay all act to mask the negative effects on consumers. Couple that with totally bogus CPI numbers . . .

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I think a lot of people don't realize just how much productivity has increased. In the past two decades, America (and the world) have gone through an explosion of innovation that is at least as significant as the industrial revolution. The information age has literally eliminated scarcity in a major, major part of the economy, and has performed miracles for small and big businesses, marketing, consumers, artists.

...yet somehow, our quality of life is not much better than it was before the internet. The wage slave, paycheck-to-paycheck paradigm still dominates. One has to wonder when the hell we're going to experience the economic "information revolution."

If you're wondering when the next great depression is going to come, we're already in it.

[adios]

Post some numbers please. I think I follow your argument but we should at least see the numbers you're working with to come to those conclusions.

National Economic Accounts

[Borodog]

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Post some numbers please. I think I follow your argument but we should at least see the numbers you're working with to come to those conclusions.

National Economic Accounts

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adios,

The best numbers I have are anecdotal, and the charts I've already posted, compiled by John Williams at www.shadowstats.com. Note that I am NOT claiming that the original CPI calculation is perfect, since I don't really believe that aggregates such as the CPI show what econocrats would like them to show. What I am saying is that the CPI has been changed numerous times over the last 30 years, and each change has been in favor of a decreasing measure of price inflation. I find this to be not only far from coincidental, but right in line with my actual experience of price changes over the past 4, 5 or 6 years.

Peter Schiff's assessment of the deflated inflation situation is in agreement, and I have always found him to be right on the ball:

http://www.europac.net/externalframeset.asp?id=10462

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For example, on Wednesday the government told us that consumer prices as measured by the CPI rose by only 2.8% over the past year. My estimate is that the actual rise was at least three times as great. The report showed that energy prices only rose by only 5.3%. Given that crude oil prices are up over 35% and heating oil prices are up 20% during that time period, how is it possible that energy prices are up only 5%? Are other energy costs falling to compensate -- firewood perhaps? The same CPI report claimed that medical costs rose by 4.6%. As a small business owner, I can't remember the last time my company’s health insurance premiums rose less than 5% per year, and they typically rise at an annual rate of more than twice that. Perhaps the most incredulous of all the data in this week's CPI report is that food prices only rose by 4.5% during the past year. I don’t know where the guys at the Bureau of Labor Statistics buy their groceries, but I’m spending at least 15% - 20% more for food this year than last. Wheat prices alone have practically doubled in the past year! The last time I checked, people tend to eat a lot of wheat. Does anyone really believe food prices are only up 4.5%?
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As the U.S. dollar weakens, a few analysts are beginning to wonder whether we will now be “importing” inflation as the cost of imported goods rises to reflect the lower value of the dollar. Once again, Wall Street still doesn’t get it. Our inflation problem is home grown. The reason the dollar is losing value in the first place is that we are creating too many of them. Since our biggest export is U.S. dollars, which foreign central banks have been foolishly monetizing, if anything it is our nation that exports its inflation to the rest of the world.
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My guess is that right now inflation is already as bad as anything we experienced back in the 1970’s. Some may argue that rising prices for food and energy are being offset by falling prices for such things as cell phones, iPods, digital cameras, plasma TV, etc. However, back in the 1970’s, prices for similar items, such as television sets, clock radios, digital watches, calculators, etc. were also falling in price. However, despite such price declines, the more honest CPI yardsticks we used at that time still recorded double digit annual gains.
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Still, the intoxicating effects that inflation has on nominal asset prices and GDP figures will eventually fade. When this happens Wall Street will sober up to the reality that the U.S. economy has actually been mired in recession for years, and that U.S. stocks have been in a stealth bear market all along. Priced in gold, euros, or Canadian dollars, (which are more accurate ways to adjust for inflation than phony government numbers) both the U.S. stock market and U.S. GDP have declined by approximately 58 %, 17 % and 21% respectively since January 2000. No wonder the government and Wall Street hang their hats on official inflation measures.
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Like a student allowed to grade his own report card, he can ditch his classes, not do his homework, flunk his exams, yet still bring home straight A’s. As long as Wall Street and the media continue to represent government inflation numbers as if they had any validity whatsoever, inflation is only going to get worse.


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