Benson's Economic &
Market Trends
Inflation Disinformation
Richard Benson
Archives
December 29, 2004
Now that the Pentagon has won
the domestic war over the United States' intelligence services,
our blinders have been removed and we are allowed to see the
real reason that the Pentagon wants to control intelligence:
to run "disinformation" campaigns against America's
enemies around the world. If our military industrial complex
is serious about understanding disinformation, they should become
students again and participate in a case study to learn how to
get disinformation right.
The Federal Reserve has done
a masterful job of distributing disinformation. Last year, they
were scaring Americans by announcing that deflation was a threat.
This year, they continue to announce "inflation is contained"
so interest rates can be raised at a "measured pace."
The Federal Funds Rate has moved up from 1 percent to 2.25 percent
while the CPI has risen from 2 percent to 3.5 percent! The real
interest rate - the Federal Funds Rate less inflation - remains
clearly negative. "Loose as a goose" as in continuing
to "goose the money supply" might be a good analogy.
Meanwhile, everyone is fighting deflation and totally focused
on the core inflation rate, which is running at about 2 percent.
The reason the core rate goes up so slowly is because it is carefully
designed to leave out the key expenses that really affect our
lives and go up in price such as energy costs, food, and housing.
The essence of disinformation is basically to get everyone to
look the other way when something like inflation is really big
and in your face constantly.
Critically, the mainstream
press has been a big help to the Fed in this endeavor. For the
most part, they simply print what they are told without doing
any factual digging or additional research, or actually examining
the "real" inflation numbers. When the Fed claims that
all that matters is the core rate, you really need to go to the
BLS and find out what the year-over-year rate is. Price increases
are downright ugly and the last thing the government wants you
to do is take a closer look.
Well, let's peek anyway at
some of the government's numbers on prices, courtesy of the Bureau
of Labor Statistics ("BLS"):
The prices above surely indicate
there is a whole lot of inflation going on now and in the "price
pipeline." The magnitude of real inflation is around us
everywhere. An example of this could be seen in New York where
taxi cab prices increased by 25 percent, while nationwide college
tuition, health care, insurance, drug prices and property taxes
are, in most cases, running near or above double digit annual
rates of price increase.
So, why does the CPI rate of
increase look so low? Ah, the genius of disinformation. First,
many of the items going into the CPI are adjusted for quality
changes, referred to as hedonic adjustment. The idea is that
since a new computer has twice the memory and processing speed
for the same amount of money, the price actually fell in half.
Even Bill Gross at PIMCO has caught on to this hedonic scam and
estimates that these convenient but false hedonic adjustments
pull the CPI down a full percentage point from where it would
otherwise be.
However, our favorite disinformation
trick in the CPI is the grand assumption that everyone in America
rents their house. In calculating the CPI, a full 29.5 percent
of the index is related to the direct costs of housing. Looking
at the price weights, 6.2 percent of this fraction relates to
people who rent, while 23.4 percent of the total CPI relates
to the total costs associated with home ownership but the CPI
assumes these homeowners rent, not own! As you can imagine, rents
have not been moving up as fast as housing prices. If the national
housing prices as published by OFHEO were used in the CPI, that
23.4 percent weight of the index for prices rising at 13 percent
a year would alone have added 3 percent to the CPI (that is if
gasoline, groceries, and everything else had not increased in
price and only rising housing prices were affecting it).
What is the "real"
CPI? If we assume that housing prices are only increasing at
three times the rate of the cost of renting, and the hedonic
adjustment is only 0.5 percent, I think we can safely assume
the following:
In looking at these numerical
facts and the actual world around us, we can truly appreciate
the magnitude of disinformation on the inflation front. The Fed
needs inflation, wants inflation, and is getting inflation. Without
inflation to inflate away a massive amount of personal, corporate,
and government debt, our financial system could collapse. A lower
dollar and higher inflation will ease the federal deficit while
the foreign central banks, that have purchased U.S. Treasuries,
will end up paying for the war in the Mid East as America's debt
is inflated away. To make the disinformation plan work, it is
critical that even if inflation is not contained, the knowledge
and perception that inflation is kicking up, is contained.
Unfortunately for savers, they
are being slaughtered by inflation very silently but at least
they are alive to work like a wage slave for another day. The
average American is so busy trying to make ends meet that when
it comes to inflation, they don't even know what's happening.
We can only hope that the Pentagon will learn from the masters
at the Fed how to have that soft touch when it comes to propaganda.
December 29, 2004
Richard Benson
Archives
President
Specialty
Finance Group, LLC
Member NASD/SIPC
2505 S. Ocean Boulevard
- Suite 212
Palm Beach, Florida 33480
1 800-860-2907
eMail: rbenson@sfgroup.org
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