How Tinkering with Inflation Measurements May Have Led to the Current Financial Crisis

 

COMMENTS

 

New

 

Inflation in the UK

 

Posted, Monday, March 9, 2009 10:27 am

 

The 'shopping basket' of goods used to calculate the UK rate of inflation comprises a constantly changing sample from more than 100,000 items. In addition, these items may be 'weighted' according to quite arbitrary factors. So it is perfectly possible to start out with some desired number in mind, 4.7% say, and mix and match the items in your shopping basket together with how they're 'weighted' and arrive at exactly 4.7%.

John

 

New

 

COLA Clauses

 

Posted, Friday, March 6, 2009 9:00 pm

 

This is nicely reasoned.

I am a teacher and our contract negotiations are always based off of the "official" inflation rate.    We've been getting screwed for several decades now.

Brian

 

New

 

This Was Intended

 

Posted, Friday, February 27, 2009 10:58 am

 

Thank you for your most interesting article entitled "How Tinkering with Inflation Measurements May Have Led to the Current Financial Crisis".

In your article you thoroughly and convincingly describe how the US Consumer Price Index (CPI) was increasingly manipulated for politico/economic reasons starting in 1982 (in the midst of the hyper inflationary recession that followed the second oil shock of 1979). There is no doubt that a manipulated CPI was used as an instrument to mask the true general inflation level during the aftermath of the second oil shock and during the 2002-2004 period. This manipulated CPI in particular provided the US Fed with a good apparent reason to maintain its low interest rate monetary policy during the 2002-2004 period.

One should however avoid from inferring that top level US policy makers were naive enough to believe their own faked CPI numbers and, as a result, make an "honest" mistake of setting a free for all monetary policy that was one of the essential causes of the present market and economic turmoil.

2004, as you rightly mention, was an election year in the US. The US was at that time (and still is) fighting a war on two fronts. This war had to be financed while allowing "W" to be reelected. One way to do that was to convince consumers that they were much wealthier than they really were. A fast rising housing bubble did just that by allowing them,with the complicity of the financial institutions and their regulators, to borrow heavily and cheaply against the inflated value of their houses and to spend that money on consumer goods as if they were all millionaires, thereby creating the illusion that the overall blooming economic activity was based on sound and robust GDP growth factors.

The calculations of those policy makers was good in the sense that they allowed the reelection of "W" in 2004, while the US was in the middle of a very expensive war on two fronts! Their strategy even almost succeeded in getting another republican elected in 2008 (Obama only won 52% of the popular vote in early November 2008 and, if it had not been for the September 2008 Lehman debacle, he would have possibly lost to McCain as a result of a strong Bradley effect).

You mention in your article the very interesting fact that Alan Greenspan, the Fed Chairman, personally lobbied the Bush-Cheney team in favor of an "unprovoked" attack on Iraq. Why would that be? Why would a Fed Chairman do that? Would it be that there were serious long-term economic/strategic implications in that decision? Greenspan's Memoirs contain a full chapter on energy...

If you have seen the recent film entitled "W" by Oliver Stone, you have probably enjoyed the scene during which Dick Cheney presents his "grand plan" for the Middle-East to "W" and a few key members of his cabinet. If you have not seen the film, I would suggest that you take the time to enjoy at least that part.

Jonatan

 

New

 

People on Social Security Have Been Short Changed

 

Posted, Thursday, March 5, 2009 12:34 pm

 

Bravo on your piece on how fudged inflation rate reporting has caused huge damage to the global economy.

I have said this to my neocon friends for years, only to be dismissed. The people on Social Security have been shorted due to phony inflation rate reporting, many of whom are now in poverty. It is unbelievable that we can pump trillions at Wall Street, but let our seniors and disabled go broke.

Thanks for a great article. It is too bad the American news media does not report what has and is really going on.

Alan

 

Nouveau

 

Mesures Falsifiées

 

Posté, jeudi, le 3 mars 2009, 9:15 am

 

Je viens de lire votre dernier article sur le CPI falsifié, je suis totalement d'accord avec vous et je crois que toutes mesures sont en partie la cause des déboires actuels que l'on vit.

J'accumule de l'information depuis environ 2 ans sur l'économie, sur tous les marchés financiers au cours des 2 derniers siécles, entre autres, sur powerpoint, etc...

Yves

 

 (Home: TheNewAmericanEmpire.com)