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Washington’s Biggest Lie (and Why it Continues to be Told)
Posted by: Dr. Paul Price (IP Logged)
Date: December 2, 2012 06:59PM






Normal people have no trouble defining how they measure inflation in their own lives. They compare what the same exact purchases of goods and services cost them today versus one-year earlier. It would include everything they spend on.

Big ticket items like gasoline, insurance (health, life, auto and property/casualty), food and utility bills have the greatest impact. Increases in other major expense categories such as college tuition, property taxes, FICA, Federal, state and local income taxes can also add tremendously to your year-over-year true cost of living.

Those of us old enough to have lived through the 1970s remember the bad old days when prices were escalating at a sickening pace. The value of a dollar fell 30.9% in the five years through 1974 and plunged 91.87% cumulatively in the decade that ended January 1979.

The officially reported 1980 CPI increase of 13.91% was the "straw that broke the camel’s back" in terms of what our leaders were willing to admit to. They decided to change the way CPI was calculated to avoid making people even more upset.

Intentionally understating CPI also served to diminish COLA (cost of living adjustments) in government salaries, pensions and social security obligations. It also kept the rates paid on government borrowing somewhat below what would otherwise have been demanded by bond vigilantes. Those nasty lenders insisted on being compensated for the fast-diminishing value of their dollars.

Unions across America used the high CPI rates to justify huge increases in pay and benefits. While inflation calmed down from the roaring period described below the BLS again adjusted their calculation of CPI in 1990 to further understate the truth as most of us see it.

Today’s headline core CPI excludes food and energy completely. That’s impossible for us to do that in our real lives. Remember the old sub-$2 per gallon gasoline prices? How about the health insurance premiums, grocery expenses and electric bills you’re paying today versus four or five years ago?





CPI Year-to-Year Growth

The CPI-U (consumer price index) is the broadest measure of consumer price inflation for goods and services published by the US Government’s Bureau of Labor Statistics (BLS).

While the headline number usually is the seasonally-adjusted month-to-month change, the formal CPI is reported on a not-seasonally-adjusted basis, with annual inflation measured in terms of year-to-year percent change in the price index.

The chart below shows the Shadow Government Stats -Alternate CPI estimate. It figures inflation based on our own government’s official methodology for computing the CPI-U in the years through 1980.

Under the old rules US inflation has been in the double-digits for much of the preceding five years. The "new" BLS numbers want you to believe price increases since 2008 have been quite mild.

The Bureau of Labor Statistics also uses a technique called substitution to hold down their reported inflation figures. If an item in their index goes up in price they can assume the consumer would simply trade down to something cheaper instead.

If your favorite rib-eye steak went from $7.99 to $12.99 per pound you’d simply eat hamburger instead. Have those organic bananas gotten too expensive? Try prunes. Need a replacement for your Lexus? Buy a Kia instead. Presto, there’s no inflation evident in any of those situations according to the BLS.

All these changes in the way CPI is calculated have been duly disclosed to the public. That doesn’t make them any less dishonest when viewed the way most people gauge changes in their real cost of living.





Fed Chairman Ben Bernanke has put Bond Vigilantes on the endangered species list with his multiple, and now eternal QE programs. Interest rates are no longer useful as measures of present or future inflation.

If truth in advertising were being strictly enforced the BLS might be renamed just the BS.

Please post comments to this article letting others know which view matches your personal, real-life experience.

Dr. Paul Price, Dec. 2, 2012


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Re Washington s Biggest Lie and Why it Continues to be Told
Posted by: BEL-AIR (IP Logged)
Date: December 2, 2012 08:59PM

In Canada I build houses...

A lot was $45,000 12 years ago, now it is $165,000....

The house and lot I sold for $150,000 now it is $430,000

The lot alone costs more to buy now then I sold the lot and house for..

This year alone lots went up $30,000....

6 years back used to pay $.99 for a whopper jr, now it is $2.50 plus is smaller.

Meals at restaurant at least $15 for a basic meal...

Go to pizza hit with a girl here order a few drinks with a pizza easily $50

Only thing cheaper is technology, but that always goes down with time, like pc etc.

Everything were I live is getting so expensive and out of sight and keeps going up an up ever year... It is impossible to hire someone here even for meager no skill jobs for less the $14 a hour due to boom here, so everything is expensive due to such high wages here as well as well as high rents and housing costs.

This is what happens when you print to much money, and money chases to few goods, it is like money is losing it's value each and every year by at least 6% a year.

Eventually inflation will get so high not be able to hide it, then interest rates will kick in and the entire debt ridden western house of cards will come down, as interest on the debt alone will take most of the taxes to service.


I say within the next 5 years.



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Re Washington s Biggest Lie and Why it Continues to be Told
Posted by: superguru (IP Logged)
Date: December 2, 2012 11:42PM


so what do we do - Buy gold? Buy real estate?


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Re Washington s Biggest Lie and Why it Continues to be Told
Posted by: mla (IP Logged)
Date: December 3, 2012 12:13AM

Yes, but Bel-Air, you have the double problem of a housing bubble that's still intact. Not that I'm saying there isn't real inflation in Canada -- just that you'll probably see the housing-related numbers drop significantly on a relative basis once it pops.


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Re Washington s Biggest Lie and Why it Continues to be Told
Posted by: BEL-AIR (IP Logged)
Date: December 3, 2012 12:54AM

Yes you are right about the bubble, I am a builder and admit to the bubble.


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Re Washington s Biggest Lie and Why it Continues to be Told
Posted by: Dr. Paul Price (IP Logged)
Date: December 3, 2012 07:26AM



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Re Washington s Biggest Lie and Why it Continues to be Told
Posted by: JUDS1234567 (IP Logged)
Date: December 3, 2012 09:34AM


Welcome to the age of financial repression


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Re Washington s Biggest Lie and Why it Continues to be Told
Posted by: Seanickson (IP Logged)
Date: December 3, 2012 07:13PM


shadowstats numbers are way off, anyone who lived through the 1970s could tell you that today is nothing like that. 10% yoy inflation today, thats ridiculous. Personally, I think the BLS numbers are closer to reality.


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Re Washington s Biggest Lie and Why it Continues to be Told
Posted by: AlbertaSunwapta (IP Logged)
Date: December 3, 2012 10:49PM

It's not like the '70s because the expectations created by official stats aren't being built into everyone's prices and wage demands. Shadowstats calculates some or all the numbers the old way for comparability. Williams is providing a great service.

One other consideration: the basket is an after-tax basket of goods. Your wage demands have to be high enough to first compensate for income taxes to then leave enough of a gain to provide for the rising cost of living. Think about that and then think about those unions that only ask for the inflation rate an get critiqued for doing so. It gets interesting when you think through the impacts of inflation indexing of brackets vs. your highest MTR. Pity those on LTD, etc. relying on COLA adjustments.


While we're on the topic, here's Buffett's views...

How Inflation Swindles the Equity Investor
The central problem in the stock market is that the return on capital hasn´t risen with inflation. It seems to be stuck at 12 percent.
by Warren E. Buffett, FORTUNE May 1977

[www.valueinvesting.de]
[www.tilsonfunds.com]


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Re Washington s Biggest Lie and Why it Continues to be Told
Posted by: sapporosteve (IP Logged)
Date: December 4, 2012 02:55AM

25 years ago I bought a Nissan Pulsar for $13,000 in Australia including air conditioning. Now I can buy a car for about the same money and probably even less as a proportion of my income. Air conditioning is standard, as are all the other accessories that we take for granted. Standards of living for most people is higher than it was and continue the march upward.

So when you talk about inflation, you might want to talk about productivity increases as well.

I remember the 70's too. Only the rich had nice cars, air conditioning in their homes and were university educated. In Australia, air conditioning in a home is just about standard. So are nice cars and plenty of the middle class are getting educated at university.

A near 60% increase in the price of steak. Can you cite a case where this has happened? You did not mention any time period. 12 month price increase?

I suggest if you have a Lexus, then you might not need to worry to much about inflation.

Your article is pure sensationalism.


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