Wednesday, June 06, 2007

Core inflation, Inflation, Money Supply, The Fiat Monetary System Nearing Breakdown.

Core inflation, Inflation, Money Supply, The Fiat Monetary System Nearing Breakdown.

The New York federal reserve said that using "core inflation" is not good inflation metric, it is more telling to use a moving average of CPI.

Which means that all those times "healthy" inflation numbers were reported the numbers were seen as good simply because gas and food were not used in the calculation of those inflation numbers.

Reading 'The Economist' paints another ugly picture for inflation: 100 USD in the year 2000 is equivalent to 204 USD today. Did your salary adjust (double) to accommodate this horrific inflation?

In fact, inflation is such a problem and is latent on everyone's mind it was satirized in a cartoon in the Economist:

A bull with horns and a t-shirt that says "Markets" runs full speed towards a soccer ball. He punts the ball at full speed and full strength. The ball flies away. The bull flexes his muscles after his stratospheric punt. A HUGE soccer ball comes back and blows the bull away. Another bull with bandages and bruises comes into the picture with the caption "Inflation!" That "record" down when normalized against commodities, gold, industrials, steel, anything, isn’t so "record" high. It’s a new low being sold as a high - but the invisible hand knows.

With inflation, core or "All Items," factored in, the current "record" markets are just getting back to where they were five years ago, and if those records are adjusted for inflation… - Things aren’t doing to well - certainly not a record.

The Fed has been printing money, expanding the money supply for the last 6 years such that a dollar today is worth half as much as a dollar in 2000. See:

Big Mac Index (The Economist):
Big Mac in April 2000 was $2.15
Big Mac today: $3.22.

Wire: (anecdotal)
A coil of ROMEX wiring for houses used to about $35 bucks in 2000.
ROMEX (100ft 10/2) is $95 + shipping (weighs about 20lbs)

Gas: (
Gas Price, 7/2003: $1.60 (CA)
Gas Price, Today : $3.50(CA)

US Median House Price of Homes Sold (source
Year 2000 - $165,000
Year 2006 - $232,500

US Average Price Of Homes Sold (
Year 2000 Q1: $202,900
Year 2006 Q1: $ 290,100

Has your salary nearly doubled since 2000? Looks like the money supply was expanded (M0 + M1 + M2 + M3 ), prices adjusted exactly to the increased money supply, yet a dollar is just as hard to earn. Jobless claims are underreported, and those who are not educated and in demand or not yet commoditized by inexpensive overseas or immigrant labor aren’t doing too well as far as being able to maintain a standard of living that the US should be capable of supporting.

The Fed stopped publishing the M3. see . This is most likely a strategy to hide the vast increase in money supply.

The calculations for inflation that are often quoted is the 'core inflation,' which excludes GAS and FOOD. Yet this has been said by the NY Fed: "Analysis by the Federal Reserve Bank of New York indicates that this measure is no better than a moving average of the Consumer Price Index as a predictor of inflation."

CPI and the "Core Inflation" are more or less the same thing. Inflation is being underreported. The prices for things not made in China / PRC are rising sharply.

This is Stagflation. We better hope for the dollar to come back to being money and hope interest rates go up. For all those with big loans they need to tie, those who foolishly borrowed greedily stole money from the children's future for transient low quality items and a McMansion - a liability for the owner in the form of taxes, insurance and paying interest, and a boon for the banks and local governments.

Low interest rates and "cheap money" help buy things you cant afford and may help stimulate non-US / overseas / emerging market sales, but salaries are still paid in USD, so rooting against the dollar destroys what is saved, destroys the value of profits and the buying power of the dollars for both businesses and employees.

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