Pay No Attention to the Fiat Currency Behind the Curtain
If you listen to virtually anyone at the Federal Reserve -- or those in its amen corner, which runs from Wall Street through K Street -- you'd think that Americans who fear inflation deserve all the respect of water fluoridation conspiracy theorists. But the statistics tell a different story, particularly when filtered through the erstwhile calculations of the Fed itself. As CNBC reports:
After former Federal Reserve Chairman Paul Volcker was appointed in 1979, the consumer price index surged into the double digits, causing the now revered Fed Chief to double the benchmark interest rate in order to break the back of inflation. Using the methodology in place at that time puts the CPI back near those levels.
Inflation, using the reporting methodologies in place before 1980, hit an annual rate of 9.6 percent in February, according to the Shadow Government Statistics newsletter.
Since 1980, the Bureau of Labor Statistics has changed the way it calculates the CPI in order to account for the substitution of products, improvements in quality (i.e. iPad 2 costing the same as original iPad) and other things. Backing out more methods implemented in 1990 by the BLS still puts inflation at a 5.5 percent rate and getting worse, according to the calculations by the newsletter’s web site, Shadowstats.com.
To maintain the inflation denial narrative, we have to ignore food and energy prices. We have to ignore the gold markets. And we have to ignore a tremendous amount of what we've learned about monetary policy in the last century. A camel can only take so many straws.
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Jun '10
Re: Pay No Attention to the Fiat Currency Behind the Curtain
Think Japan. Think Tsunami. That's how the inflation will come. A tide of inflation will just start welling up someday, with no immediate relief in sight. All you can do is get up high, high as you can, and be prepared to sit it out.
Sep '10
Re: Pay No Attention to the Fiat Currency Behind the Curtain
I've been meaning to do a post on why Ricochet needs an economist as a full-time contributor. Peter and Rob, can you make that happen? Someone like Russ Roberts of Econtalk (and the Keynes and Hayek rap video) would be perfect.
As institutions like the Federal Reserve allow the government to impoverish us all, having a strong debate on economic matters is essential to preserving--and why kid, I really mean regaining--our liberty.
Sep '10
Re: Pay No Attention to the Fiat Currency Behind the Curtain
Really, can someone take the side of the debate on how any upside of a Federal Reserve run by philosopher kings is worth it when, if it's run more malevolently, it can ruin us all. The benefits (which have arguably never been realized), aren't worth the risks. I think the historical facts are with me on this.
Sep '10
Re: Pay No Attention to the Fiat Currency Behind the Curtain
I think this is a worthy of being injected into the debate (there is a little crude language in here for the sake of comedy, but if you're offended by that sort of thing be warned):
An Explanation of The Quantitative Easing
Edited on Apr 12, 2011 at 8:56pmJul '10
Re: Pay No Attention to the Fiat Currency Behind the Curtain
Silver is up 143% over the past 12 months, while the value of the dollar against the benchmark basket of international currencies is down nearly 20%. 'Nuff said.
Edited on Apr 12, 2011 at 9:08pmRe: Pay No Attention to the Fiat Currency Behind the Curtain
The moment the Fed tightens, interest rates will rise, US sovereign debt service costs will spike and we will really feel our 12% (GDP) annual budget deficit. Expect the Fed to continue printing money until after November 2012.
Oct '10
Re: Pay No Attention to the Fiat Currency Behind the Curtain
what is needed is price controls.
Jun '10
Re: Pay No Attention to the Fiat Currency Behind the Curtain
I hope you are being facetious, John, because if you're not you are proposing a disaster that will make inflation look like a walk in the park.
Oct '10
Re: Pay No Attention to the Fiat Currency Behind the Curtain
Troy, how do you explain 2008, then? Prices still aren't as high as they were then (I remember masking tape--masking tape, and the smaller kind!--going for 9 dollars). I mean, sure, prices are higher, but until we get back into 2008 territory it's hard to take current inflation seriously.
What is the Fed supposed to do? Inflation is being driven by emerging nations pegging to our exchange rate, it's not coming from our domestic economy. Should the Fed induce a recession simply to keep China, Brazil, India, and other emerging markets in line?
Re: Pay No Attention to the Fiat Currency Behind the Curtain
Let's see: excessive taxation, check; overregulation, uh huh; feckless foreign policy, overstretched military, excessive monetary growth and mandatory energy conservation, yup, every last one. What's missing from our remake of the 1970s? Price controls!
Oh, we'll also need a few of those Whip Inflation Now buttons.
May '10
Re: Pay No Attention to the Fiat Currency Behind the Curtain
Troy Senik: As CNBC reports:
If only all news corporations similarly assumed government statistics are distortions.
Jun '10
Re: Pay No Attention to the Fiat Currency Behind the Curtain
Demaratus: I've been meaning to do a post on why Ricochet needs an economist as a full-time contributor. Peter and Rob, can you make that happen? Someone like Russ Roberts of Econtalk (and the Keynes and Hayek rap video) would be perfect.
As institutions like the Federal Reserve allow the government to impoverish us all, having a strong debate on economic matters is essential to preserving--and why kid, I really mean regaining--our liberty. · Apr 12 at 8:41pm
Darn it, you're stealing my thunder. I've been planning on posting the same suggestion. We really do need an economist on Ricochet. We have politics, law, history, and many other fields covered, but not economics. That's a glaring hole. Russ Roberts would be great, but it doesn't need to be anyone famous really. I have my own candidate. He just doesn't know it yet, so I intend to ask him.
Feb '11
Re: Pay No Attention to the Fiat Currency Behind the Curtain
A falling dollar creates higher prices for imports. Logically, this shifts cost calculations in favor of domestic production and causes the mix to shift toward onshore manufacturing. And there have indeed been some companies putting more emphasis on US-based sourcing. But over the last few decades there have been many aspects of public policy, and indeed certain trends in the overall culture, which are in essence anti-manufacturing and will tend to inhibit this process.
Sep '10
Re: Pay No Attention to the Fiat Currency Behind the Curtain
David, you're right, it does; but, it also inhibits our ability to attract capital to pay for our feckless government spending, and in the event of a real crisis like war finance our own defence. Also, while it may promote more domestic product and perhaps employment, it is doing so by stealing money from all of us as our dollars and paychecks are worth less and less.
Jul '10
Re: Pay No Attention to the Fiat Currency Behind the Curtain
John Marzan: what is needed is price controls.
Dang. You sounded just like Richard Nixon for a minute, there.
Oct '10
Re: Pay No Attention to the Fiat Currency Behind the Curtain
That assumes the dollar isn't already overvalued. Actually, it doesn't have to produce inflation at all, if the savings rate goes up. If the savings rate doesn't go up then no amount of devaluation will do any good in the long run (just look at the inverse case of Japan; no matter how high their currency goes, their trade surplus never shrinks).