Understated Inflation  

I read last year, 8/20/2013, that the Fed’s Ownership of U.S. Debt Breaks $2T for First Time. When the Feds (Federal Reserve System, e.g., US national bank) lend the government money they create the money by printing it. No, that is the way they used to do it, now they just credit the government‘s account with the funds they are lending the government. Poof! Out of thin air it is created, and the government spends it.This is what the Weimar German government did after WWI to pay the huge debt that the winners of the war imposed upon them. On a side note it was called the Weimar government because that was the name of the city in Germany in which it was formed after the Emperor Kaiser Wilhelm II forces surrendered with the The Treaty of Versailles.

Now back to the money, the printing presses ran, the debt was paid, and the money became worth less and less as they printed more and more until it was worthless. It was called hyperinflation. Why do we not have the same problem what with our government printing way more money that the Germans ever did? Well, we are, they are just hiding it from us, but when we go shopping we really feel; the bite of inflation.

Consumer Price Index Has Been Reconfigured Since Early-1980s so As to Understate Inflation versus Common Experience. The CPI no longer measures the cost of maintaining a constant standard of living.  The CPI no longer measures full inflation for out-of-pocket expenditure.  With the misused cover of academic theory, politicians forced significant under reporting of official inflation, so as to cut annual cost-of-living adjustments to Social Security, etc. Use of the CPI to adjust retirement benefits, private income or to set investment goals impair the ability of retirees, income earners and investors to stay ahead of inflation.
Understated inflation used in estimating inflation-adjusted growth has created the illusion of recovery in reported GDP. May the Lord bless us all!

As John Lawrence Allen recently wrote:

So why would the government distort the true inflation rate? Because by underreporting inflation, the government saves billions on social security payments and anything else linked to the inflation rate. If inflation is currently running at 7 percent, as many economists claim, but the government reports it at under 2 percent, guess who pays the difference? We do. And the result is a reduction in the standard of living with consumers spending more and more of their after-tax dollars on basic necessities, leaving little to spend on vacations and other non-essential items.

The Federal Reserve’s policy of printing vast amounts of money to keep the economy from rolling over into a depression only exacerbates the problem. By increasing the amount of money in circulation, the Fed is reducing the purchasing power of everyone and thus reducing our standard of living.  The only ones profiting from this debasement are the banks, the Wall Street crowd and the super rich friends of government who received the bailouts, and other government handouts for their pet projects. We pay for this debasement in the form of higher costs.

 

 

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