The Great Inflation Lie
According to official government statistics, the core Consumer Price Index (CPI), the most widely used measure of inflation, is running a very low 2.4% per year. In fact, during the past 13 years, inflation has maintained this same unusually low rate - even though the CPI itself since the start of 1993 has ranged from as high as 3.6% to as low as 1.1%.
This phenomenon is quite unusual considering the fact that since 2001, actions taken by the Federal Reserve to increase the money supply have caused interest rates to drop to 40 year lows. Such a move is usually inflationary, but the Fed's actions have barely registered on the overall economy.
And if inflation really is so low, then why is the price of everything you buy going up so fast?
The simple answer is that the official inflation rate is virtually pure fiction, and it has been for at least a decade!
For a very long time, the accuracy of government economic figures has been going straight downhill. And here are some examples to explain this situation:
1. During the Kennedy administration, unemployment was redefined with the concept of 'discouraged workers' to reduce the unemployment rate.
2. When Lyndon Johnson didn't like the growth that was going to be reported in the GNP, he sent it back to the Commerce Department, and he kept doing so until Commerce "got it right."
3. The Carter administration was caught deliberately understating inflation.
4. The first Bush administration began efforts at the systematic reduction of the reported rate of CPI inflation.
5. The current Bush administration has expanded upon the Clinton era by setting the stage for the adoption of a new and lower inflation CPI.
But while it might shock many Americans to learn that the government could be lying, it wouldn't faze most Europeans. In most places in the world, citizens assume their governments lie about statistics, and they always doubt the "official" rates. Sad to say, America has become like most other countries in this respect.
The lesson is clear: You would never trust politicians to safeguard you, so don't trust them to tell you the truth about what's really happening with the economy.
There are many reasons why it is in the government's interest to make the inflation seem lower than it actually is. First and foremost, it saves them billions of dollars. For instance, cost-of-living adjustments in Social Security, welfare payments, Medicare, and other entitlements are all based on changes in the CPI.
Similarly, keeping the official CPI rate low keeps salary and pension adjustments for government employees and retirees much lower than they would otherwise be. And a low official CPI also helps suppress interest payments on the national debt, while it limits the cost of government borrowing, which is now over $1 trillion a year.
Next time: We'll talk about HOW the official inflation rate is manipulated.
* * * * *
This phenomenon is quite unusual considering the fact that since 2001, actions taken by the Federal Reserve to increase the money supply have caused interest rates to drop to 40 year lows. Such a move is usually inflationary, but the Fed's actions have barely registered on the overall economy.
And if inflation really is so low, then why is the price of everything you buy going up so fast?
The simple answer is that the official inflation rate is virtually pure fiction, and it has been for at least a decade!
For a very long time, the accuracy of government economic figures has been going straight downhill. And here are some examples to explain this situation:
1. During the Kennedy administration, unemployment was redefined with the concept of 'discouraged workers' to reduce the unemployment rate.
2. When Lyndon Johnson didn't like the growth that was going to be reported in the GNP, he sent it back to the Commerce Department, and he kept doing so until Commerce "got it right."
3. The Carter administration was caught deliberately understating inflation.
4. The first Bush administration began efforts at the systematic reduction of the reported rate of CPI inflation.
5. The current Bush administration has expanded upon the Clinton era by setting the stage for the adoption of a new and lower inflation CPI.
But while it might shock many Americans to learn that the government could be lying, it wouldn't faze most Europeans. In most places in the world, citizens assume their governments lie about statistics, and they always doubt the "official" rates. Sad to say, America has become like most other countries in this respect.
The lesson is clear: You would never trust politicians to safeguard you, so don't trust them to tell you the truth about what's really happening with the economy.
There are many reasons why it is in the government's interest to make the inflation seem lower than it actually is. First and foremost, it saves them billions of dollars. For instance, cost-of-living adjustments in Social Security, welfare payments, Medicare, and other entitlements are all based on changes in the CPI.
Similarly, keeping the official CPI rate low keeps salary and pension adjustments for government employees and retirees much lower than they would otherwise be. And a low official CPI also helps suppress interest payments on the national debt, while it limits the cost of government borrowing, which is now over $1 trillion a year.
Next time: We'll talk about HOW the official inflation rate is manipulated.
* * * * *
posted by Bob Moser at
3:22 PM
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