WSJ Opinion Editorial tells the truth about the Inflation numbers

A dose of reality not a bad thing right now. Bumped by carol in the interest of sanity. Originally posted 2008-03-11 08:22:47 -0500.

If you are old enough, in 4th grade, accustomed to jig saw puzzles, and then looking at a map of the world, you might have thought: "gees, this rounded protruding part of South America looks as if it could fit right into this shallow depression along the edge of Africa." (Okay, I know that fourth graders don't talk like that, but hopefully you get the picture.)

The teacher or the nun probably slapped you down for such nonsense, until tectonic plate theory and Al Gore came along to provide vindication.

I felt like that yesterday reading Gerald Driscoll Jr.'s Opinion Editorial,
Inflation Alert, in the Wall Street Journal.

Driscoll, the former vice president of the Federal Reserve Bank of Dallas, points out that the Fed is wearing no clothes ... as those of us who actually have to pay for our food, housing, and transportation could have told him.

With "headline" consumer price inflation (CPI) at 4.3% for the last 12 months, we have now reached the inflation rate that spurred Richard Nixon to impose wage and price controls on Aug. 15, 1971.

...snip...

What is different today is that the Fed now takes food and energy prices out of the inflation measure and instead reports what it calls "core inflation." Thus we're told inflation is only 2.7%.

Driscoll goes on to point out that although the Fed had for years all its technocrat reasons (excuses?) for the "core inflation" index, average citizens or "dollar users" in Driscoll's terms, don't experience "core" inflation at the checkout counter. We experience the real thing.

It's about time we started talking about the economy in real measures, not tinkered ones that support current administration policies. As Driscoll's piece points out:

The Fed needs to return to its mandate of controlling inflation. The first step is for the Fed to shed an inflation measure that misleads itself, other policy makers, and the markets. We do not need a rerun of the 1970s. Once is enough.

Let's hope the FED is listening and does, as Driscoll advises, shed shaved statistics that become the basis for bad policy. In the meanwhile, the Fed's credibility is tanking, just like the dollar.

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There's some argument that there's a bubble in commodities as investors look for safe havens from financials.
Bloomberg Commodities Futures - gee, the graph goes straight up.

Or in fact... both...

resist: The Naked & the Fed . . .

Thank you! I swear you need to teach us satire in headline writing.

did one thing right by dropping the interest rates.

When we hit this wall in the 80's I could build a spec house for a 500-dollar down on the land, banks would subordinate, loan for construction. Interest only for up to 9 months. Huge amount of builders got stuck making payments on loans when the interest rates jumped to 18.5 on a 30-year fixed, and the construction industry shut down.

From boom to bust in less than six months. Four years to marginally recover on that one.

February issue has an article, The next bubble: Priming the markets for tomorrow's big crash, that is long but worth the time to read.

I think people are putting money into commodities short term. There are other factors that are putting upward pressure on them too. I hope people are being advised properly on commodities since they can be very volatile and a good way to lose your shirt if you aren't careful. Safer buys like precious metals might be a good bet but the agricultural commodities can go all over the map.

but I don't think the migration to "new new new" technologies will necessarily result in hyperinflation. Naturally that depends on how carefully crafted the legislation is going forward, and how much we continue to follow the past while failing to learn from it.

Consider the effects of rendering the entire electrical grid system obsolete by providing power nearer the need. That one change alone would have profound cultural and economic effects, and is possible within a generation.

Not that our economy is in great shape but something that is available to all of us is online stock trading and access to foreign markets at lower costs then using regular brokers. If anyone travels or has family in other countries and knows where they stand why not make some investments over seas where another economy could be doing really well compared to ours.

We had a 52% increase in our electric in the last year and a half, and milk went from $3.89/gallon to $5.29/gallon ... so at the checkout, my highly devalued dollars have to stretch to the breaking point.

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If it's true that our species is alone in the universe, then I'd have to say that the universe aimed rather low and settled for very little. ~ George Carlin

and in some countries, wheat is up five times what it was a year ago.

been here. Hadn't noticed the new Cole blog until today. . .

a world wheat shortage would certainly raise the price on this "famine food".

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ePMedia ... get the scoop with us!
If it's true that our species is alone in the universe, then I'd have to say that the universe aimed rather low and settled for very little. ~ George Carlin

Runaway prices here and famine in the developing sector!

carol