THE CONSUMER PRICE INDEX (CPI) HAS BEEN MANIPULATED TO MINIMIZE THE IMPACT OF INFLATION
An article by Robert Hardaway, a law professor who has written fourteen books on law and public policy, (there is a link to the article below) is one of the best that I have seen on the subject. It is especially important because it points out how government agencies manipulate the producer and consumer price indices. Governmental authorities view inflationary psychology as a particularly dangerous opponent, they want to keep it down at whatever cost.
AS CONSUMERS DEMAND MORE GOLD TO PROTECT THEMSELVES FROM INFLATION…CENTRAL BANKS SELL MORE TO KEEP INFLATIONARY PSYCHOLOGY DOWN
I believe that this is why central banks sell gold periodically. They sell more gold if inflation appears to be rising. Recent rises in inflation in China, India and other countries that sell goods and services to the developed world have been met with increased gold sales by developed country’s central banks. We can expect, as inflation is exported from the developing to the developed countries in coming years, increased sales of gold by central banks. We can also expect to see more and more consumers hedging their declining currencies and the rising inflation with gold coin purchases.
From: Home News Tribune Online
By: ROBERT HARDAWAY
In 1983, the Bureau of Labor Statistics was faced with an awkward dilemma. If it continued to include the cost of housing in the Consumer Price Index, the CPI would reflect an inflation rate of 15 percent, thereby making the country’s economy look like a banana republic. Worse, since investors and bond traders have historically demanded a 2 percent real return after inflation, that would mean that bond and money market yields could climb as high as 17 percent.
The BLS’s solution was as simple as it was shocking: Exclude the cost of housing as a component in the CPI, and substitute a so-called "Owner Equivalent Rent" component based on what a homeowner might "rent" his house for.
The result of this statistical sleight of hand was immediate and gratifying, for the reported inflation index quickly dropped to 2 percent. (This was in part because speculators needed to offset their holding costs by renting out their homes while their prices skyrocketed, thereby flooding the market with rentals that pushed down the cost of renting a house or apartment.)
While the BLS was correct in assuming that this statistical ruse would fool the average citizen into believing that inflation was only 2 percent (and therefore be willing to accept a meager 4 percent return on his bank savings), what is remarkable is that the ruse also fooled the bond traders, and apparently continues to do so, leading analyst Peter Schiff to describe these supposed savvy bond traders as the "hormonal teenagers of the capital markets."
The present subprime credit crisis can be directly traced back to the BLS decision to exclude the price of housing from the CPI. It is now clear that the "benign" inflation figures reported over the last 10 years in no way reflected the skyrocketing rise in home prices, with states like California experiencing annual home-price increases of as much as 30 percent. With the illusion of low inflation inducing lenders to offer 5 percent and 6 percent loans, not only has speculation run rampant on the expectation of ever-rising home prices, but homebuyers by the millions have been tricked into buying homes even though they only qualified for the "teaser" rates that quickly escalated to unaffordable levels. As long as home prices continued to skyrocket, buyers could refinance based on the increased value of their equity as collateral; but once home prices stabilized and even declined, many families were forced into foreclosure.
To view the article, click the link below:
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