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Real inflation

Discussion in 'U.S. Politics' started by Dr.Who, Jan 5, 2014.

  1. Dr.Who

    Dr.Who Well-Known Member

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    I am putting this in the politics section and not in the economics section because 1. the economics is just the symptom and 2. this is largely about deceit and politics.

    A few months ago I came across a site that claimed that the real rate of inflation is not what our government has been telling us but is actually higher. Dole and boring until you consider that every one of us who saves for retirement is losing vast sums of future buying power; every one of us who invests is not getting the return we think we are getting; every one of us who earns a living is not getting the raises we think we are getting; and every one who buys something is spending more and more for the same things. (Krugman will tell you this is not important because wages also increase due to inflation but those increases are often based on the official stats and those increases do not help in any way for money that is saved or invested, it only helps for money that is spent)

    And I am not talking small potatoes here. These differences add up to huge sums of money and make a large difference in the lives of the people they effect (that' us). It makes the difference between working until you drop dead well into old age or retiring in a sunny place; scrimping and saving and maybe even being dependent on government aid or taking care of yourself.

    So this is the site I saw:
    http://www.shadowstats.com/

    Since then I have checked to see of there are others on the web who agree with the basic statements and indeed reputable and trustworthy sources agree that the method used to calculate inflation has been altered and results in a smaller calculated rate of inflation.

    But this has been nagging at me and I still wondered if it were actually true. So today I thought I would test the premise. I found this site:
    http://www.dailyfinance.com/2009/12/29/then-vs-now-how-prices-have-changed-since-1999/
    Which tells us the actual cost of what many things were in 1999 and what they cost in 2009.

    Then I compared those results with an inflation calculator that uses the official data found here:
    http://www.bls.gov/data/inflation_calculator.htm

    Taking 15 items from the list of goods and calculating the rate of inflation that has occurred during that time I find that the real rate of inflation for those goods is 48% from 1999 to 2009. (15 goods in 1999 cost an average of $7.75 then but later cost $11.51 in 2009.)

    Using the official calculator it tells me that $7.75 (the average cost of my 15 goods I chose from that list) in 1999 should cost $9.98 in 2009 at the official cumulative inflation rate of 28.8%.

    So the results I got confirm that the official rate of inflation is truly less than the real rate of inflation.

    We are being misled and making decisions with our money that are based on false premises. Many of our politicians and their accomplices know the reality and they make their decisions based on real data.
     
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  2. PLC1

    PLC1 Moderator Staff Member

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    The real rate of inflation is difficult to pin down. Some things have increased dramatically in price over the years, other things not so much.
    Going back to the mid '60s and positing a factor of ten in the increase of prices since then, I really get a mixed bag:

    gallon of gas then, 25-30 cents, now more than ten times as much.
    rent a small apartment, $100 then, maybe $700 now in the same location, less than ten times as much. Of course, it depends on where you live.
    I bought a '68 VW beetle for $2,000, new. Now, $20,000 will buy a small car, but it's far from the same car. Technology has improved them dramatically.
    A color TV is actually cheaper today, and far better.
    How you pin down the exact rate of inflation, I'm not sure. Of course, the government will want to minimize it as much as possible, as Social Security is dependent on the CPI, and because the government with its multi trillion dollar debt needs a low interest rate, which is also tied to the CPI.
     
  3. cashmcall

    cashmcall Well-Known Member

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    I went back to 1978..it was a great year for me..
    IMO It is the secret tax. Inflation. Government at all levels- has been increasing actual tax rates. But they don't just settle for that. They have also been inflating away the value of the money you earn. The double whammy. So I surfed over to the Bureau of Labor Statistics and wouldn't you know...the CPI tables going back to 1978 were not available. So I had to use this conversion calculator instead. I plugged in 1000.00 dollars in 1978 and the calculator told me that in 2013 the equivalent amount of cash is 3,472.
    http://www.bls.gov/data/inflation_calculator.htm

    A paltry 250% loss in buying power. Cumulatively speaking, over those three decades, we are losing about 8% real inflation every year. But wait a minute, doesn't the BLS publish those bullshit statistics minus food and energy that tells us inflation only runs 2-3% a year? Of course they do. Cleverly manipulated data sets that are changed over the years to hide the truth from you. Why? Because all fixed income government retirements and social security cost of living increases are based on CPI. The lower they can manipulate that number- the less they have to pay you. There is one other HUGE thing you should know. CPI does not account for the loss in taxes. Each time a taxing entity raises taxes- it does not land in some basket where that is measured and accounted for. That money is lost- taxes are not taken into account.

    Most people don't know this but the BLS used falling home prices to offset the price rise in all other commodities. In fact, they nearly doubled the weighting as it applies to housing costs to something on the order (from memory) of 47%. That's why they can show this ridiculously low inflation rate when all of us are simply getting our asses kicked- week after week in retail outlets, grocery stores, and at the pumps. They even manage to exclude food and energy costs which are through the roof year over year. I am having a difficult time locating a non pdf file to verify the huge weighting the BLS has given housing rents recently after the steep decline in 2008. (They quit using home ownership and switched to rental costs for some ambiguous reason that I am sure suited them)

    That's why those little ridiculous cost of living increases are such a joke. They are based on deceptive and fraudulent numbers generated by your government BLS. Tonight I went and looked at some Public Employees Retirement sites to see how much their annual cost of living raise was going to be. I was not shocked to see that it was only 1% again this year. That means they lost another 7 or 8% again this year on top of the 7 or 8% they lost last year. So far, two years into the retirement system they have already managed to lose 15% of buying power. And most of them are still trying to remain grateful.

    Perhaps the best part of the BLS site is that they contradict themselves and prove my point. By default they tell you the truth. Not in the month to month numbers, or even in the yearly numbers. That little calculator of theirs- tells the truth. We have had 30 years of 8-9% inflation, not the 2-3% they report annually. That's how we lost 250% worth of buying power since 1978.
     
  4. Cruella

    Cruella Well-Known Member

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    Interesting. I tried to follow ^, but it's hard for me.

    What about QE and what's it's doing to the dollar value? When is all this going to implode, or is it?
     
  5. PLC1

    PLC1 Moderator Staff Member

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    I don't think anything will implode, but we'll continue to have inflation, just as we always have. The challenge is for wages to keep up with inflation, which hasn't been happening for the past half century at least.
     
  6. Cruella

    Cruella Well-Known Member

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    It costs too damn much to live in this country. Housing, utilities, food, and transportation is one thing, then when you add in all the mandated crap like fines, licenses, insurances etc., it becomes too much for a lot of people to handle, and your right, wages don't keep up with the bare necessities.

    We've moved into a global economy with most of our purchases coming from third world countries, then we wonder what happened to all the jobs that sustained the middle class.

    Of course we have a lot of other social problems that only add to the burdens on those who are working hard to try and get ahead.
     
    Last edited: Jan 6, 2014
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  7. cashmcall

    cashmcall Well-Known Member

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    QE will at some point cause inflation to get worse.. second part of your question .. I DON"T NOW... We have never been where we are today.. unchartered waters..
     
  8. cashmcall

    cashmcall Well-Known Member

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    PLC1..Bottom line things are going to have to change.. Really change..
     
  9. PLC1

    PLC1 Moderator Staff Member

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    Well, we elected a president whose motto was "hope and change," and didn't get much in the way of change. Maybe we need to elect one that has "status quo" as a motto.
     
  10. Dr.Who

    Dr.Who Well-Known Member

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    The fed has "printed" about 2 trillion dollars since the inception of QE and that must almost certainly result in debasement of the money supply = inflation. So where is the inflation? Well first there is the reported 2 ish percent. Then there is the "real inflation" that is the topic of the OP. Then there is the price increase that is glaringly staring us in the face in terms of the price of stocks. But suppose that many of those debased dollars are actually being held by foreigners and since they are holding their dollars and not spending them then no inflation will be apparent until such a time as they stop holding dollars and start spending them.

    If it implodes it will be in the form of higher inflation. Let us all hope that it is not all out out of of control inflation.

    To really get off the rails I ask what happens if our economy is tanking and deflation happens at the same time as we are causing inflation? Could we walk that tightrope? Has Japan been doing that for 20 years now?
     
  11. Dr.Who

    Dr.Who Well-Known Member

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    Inflation is a modern event in US history only having happened before briefly during the revolutionary and the civil wars.

    If we look through history just about every country that ever began printing money lost control and suffered greatly as a result. The fed thinks we will be different.

    I agree that it is a challenge for wages to keep up with inflation. I would add that that is not the only problem since savings can never keep up with inflation. There is every incentive for people to simply not save - that can't be healthy can it?
     
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  12. Dr.Who

    Dr.Who Well-Known Member

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    What if we look back at what has worked in the past and conserve those beneficial things from the past?
     
  13. Texas_tea

    Texas_tea Well-Known Member

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    Obama's motto was also "Forward" ..... the same motto that Marxist dictators have used for nearly a century ....

    I am pretty sure this current regime is not interested in preserving ANYTHING in America's past!
     
  14. PLC1

    PLC1 Moderator Staff Member

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    A higher interest rate would help preserve savings, but would make borrowing more expensive. In a consumer oriented economy, that could bring about more savings, but put a damper on the economy in the long run.

    Anyway, we're unlikely to see higher interest rates as long as the federal government has a 17 trillion and growing debt.
     
  15. Texas_tea

    Texas_tea Well-Known Member

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    Correct ....

    And, here lies the root of this problem.

    trillion.breakdown_600pxwide.jpg
     
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