The Economic Consequences of Manipulating the CPI
The blatantly false official consumer price index has many harmful consequences for both individuals and our economy as a whole - like the recent collapse of the U.S. dollar - which is down by almost 40% in just over three years, and has been caused by the inflation lie.
As Americans, we might believe the government's lie about inflation, but the rest of the world doesn't. The oversupply of dollars - which is what inflation is - becomes apparent to the rest of the world, and so the value of our dollar declines.
There is evidence that inflation statistics have been manipulated for about ten years. If the government understates inflation by just two percentage points a year, the effect cumulative over ten years, is about 22% in extra inflation - almost doubling the "official" rate over the same period.
It's easy to lie about inflation until the government gets caught. And our government gets caught when the U.S. buys commodities from the rest of the world. Commodity sellers realize the dollar is worth less. Commodity prices in turn rise dramatically. Interestingly, this is exactly what is happening with commodity prices these days across the board.
This phenomenon of phony inflation provides an illusion for Fed policymakers, who can claim that inflation is low. And they in turn keep interest rates low. Then, low rates cause everyone - from individuals to corporations to government - to overspend, thanks to artificially low and unsustainable interest rates, plus easy credit.
You can see this everywhere in our society today from home buyers "qualifying" for loans they really can't afford - thanks to artificially low interest rates, to homeowners who use their artificially inflated home equity as an ATM, and to the federal government's current binge of deficit financing.
It's no surprise then that this past February, Australia's Treasury Secretary said publicly that "the U.S. is heading for a devastating financial crash, that could ravage Australia's economic growth." He also warned that so few people in the world want worthless dollars, and only the intervention of Asian central banks, such as Japan, China, and South Korea, have staved off a complete dollar collapse.
With foreign central banks buying less and less U.S. debt - while complaining about low interest payments, the bust is not far off and could begin by the end of this year - potentially devastating stocks, bonds, businesses, real estate, and jobs.
Fed Chairman Alan Greenspan is in a terrible bind. He must raise interest rates to attract foreign buyers of our debt. Otherwise, the dollar will most assuredly collapse. But the U.S. economy is not as strong as it should be after years of the lowest rates in history. And as Greenspan raises rates, it will choke the one sector that has fueled the U.S. economy for the past four years: the housing market.
Once the housing market begins to crash, the other dominoes could all begin to fall as well. But, not to worry. No matter how high interest rates go, and no matter how many people lose their jobs, the "official government inflation rate" will still probably be well under 3%. So don't worry - be happy!
* * * * *
As Americans, we might believe the government's lie about inflation, but the rest of the world doesn't. The oversupply of dollars - which is what inflation is - becomes apparent to the rest of the world, and so the value of our dollar declines.
There is evidence that inflation statistics have been manipulated for about ten years. If the government understates inflation by just two percentage points a year, the effect cumulative over ten years, is about 22% in extra inflation - almost doubling the "official" rate over the same period.
It's easy to lie about inflation until the government gets caught. And our government gets caught when the U.S. buys commodities from the rest of the world. Commodity sellers realize the dollar is worth less. Commodity prices in turn rise dramatically. Interestingly, this is exactly what is happening with commodity prices these days across the board.
This phenomenon of phony inflation provides an illusion for Fed policymakers, who can claim that inflation is low. And they in turn keep interest rates low. Then, low rates cause everyone - from individuals to corporations to government - to overspend, thanks to artificially low and unsustainable interest rates, plus easy credit.
You can see this everywhere in our society today from home buyers "qualifying" for loans they really can't afford - thanks to artificially low interest rates, to homeowners who use their artificially inflated home equity as an ATM, and to the federal government's current binge of deficit financing.
It's no surprise then that this past February, Australia's Treasury Secretary said publicly that "the U.S. is heading for a devastating financial crash, that could ravage Australia's economic growth." He also warned that so few people in the world want worthless dollars, and only the intervention of Asian central banks, such as Japan, China, and South Korea, have staved off a complete dollar collapse.
With foreign central banks buying less and less U.S. debt - while complaining about low interest payments, the bust is not far off and could begin by the end of this year - potentially devastating stocks, bonds, businesses, real estate, and jobs.
Fed Chairman Alan Greenspan is in a terrible bind. He must raise interest rates to attract foreign buyers of our debt. Otherwise, the dollar will most assuredly collapse. But the U.S. economy is not as strong as it should be after years of the lowest rates in history. And as Greenspan raises rates, it will choke the one sector that has fueled the U.S. economy for the past four years: the housing market.
Once the housing market begins to crash, the other dominoes could all begin to fall as well. But, not to worry. No matter how high interest rates go, and no matter how many people lose their jobs, the "official government inflation rate" will still probably be well under 3%. So don't worry - be happy!
* * * * *
posted by Bob Moser at
2:52 PM
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