[P2P-F] Fwd: Best Article On Inflation I Have Read In Years

[Michel Bauwens]

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Kind regards,

Christopher

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WEDNESDAY, OCTOBER 04, 2017 Of Two Minds - Charles Hughs Smith




Be Careful What You Wish For: Inflation Is Much Higher Than Advertised
<http://charleshughsmith.blogspot.ie/2017/10/be-careful-what-you-wish-for-inflation.html>

*What the Federal Reserve is actually whining about is not low
inflation--it's that high inflation isn't pushing wages higher like it's
supposed to.*
*It's not exactly a secret that real-world inflation is a lot higher than
the official rates--the Consumer Price Index (CPI) and Personal Consumption
Expenditures PCE).* As many observers have pointed out, there are two
primary flaws in the official measures of inflation:
1. Big-ticket expenses such as rent, healthcare and higher
education--expenses that run into the thousands or tens of thousands of
dollars annually--are severely underweighted or mis-reported. While rents
are soared, the CPI uses an arcane (and misleading) measure of housing
costs: owners equivalent rent. Why not just measure actual rents paid and
actual mortgages/property taxes/home insurance premiums paid?
Healthcare is 18% of GDP but only 8.5% of CPI. To those exposed to actual
costs of healthcare, 8.5% of the CPI is a joke.
The same can be said of higher education: households paying tuition and
other college costs are exposed to horrendously high rates of inflation, as
illustrated in this chart:
Revealing the Real Rate of Inflation Would Crash the System
<http://www.oftwominds.com/blogaug16/inflation-crash8-16.html> (August 3,
2016)
The Burrito Index: Consumer Prices Have Soared 160% Since 2001
<http://www.oftwominds.com/blogaug16/burrito-index8-16.html> (August 1,
2016)
Inflation Isn't Evenly Distributed: The Protected Are Fine, the Unprotected
Are Impoverished Debt-Serfs
<http://www.oftwominds.com/blogmay17/protected-inflation5-17.html> (May 25,
2017)
Then there's the *hedonic adjustments* that are made to reflect
improvements in quality, features, safety, etc. So the price of computers
is discounted to reflect the increase in memory, etc. compared to previous
models. This is a can of worms, as anyone shopping for a new car or truck
can attest: yes, the vehicles have more safety features, but the sticker
price is much higher. Do we knock off $10,000 the "price" because of these
additional features? Why should we, when consumers have to pony up $10,000
more than they did a decade ago?
*More honest and accurate estimates of real-world inflation that include
the big-ticket categories of housing, healthcare and higher education
reckon annual inflation is around 7% or even as high as 10% in high-cost
metro areas, not 2%.* This sets up a very peculiar cognitive dissonance in
the financial media.
*On the one hand, government agencies are bending over backward to
under-report inflation. On the other, the Federal Reserve is whining that
inflation is too low and their efforts to push it higher have failed.* Heck,
folks, the solution is obvious: just report real-world inflation without
the hedonic adjustments and other shuck and jive, and when the rate of
inflation comes in at a hot 7% instead of the official 2%, the Federal
Reserve can declare victory.
*Why does the Fed want higher inflation?* The general explanation is higher
inflation benefits bankers, borrowers and the expansion of credit that
underpins our consumerist economy.
The idea is that as wages rise with inflation (assuming wages are rising,
which they're not for the bottom 90%), households will have an easier time
servicing existing debt and getting new loans.
The payments due on existing debt become easier to make as inflation
expands everyone's paychecks. (Note that this expansion doesn't mean the
purchasing power of the wage has increased; it's an illusory expansion that
serves the credit industry.)
Banks benefit because they earn fees on originating new loans and rolling
over existing debts into new loans.
*But the supposed benefits of high inflation are undercut if wages don't
rise as fast as prices.* As many observers have noted, wages for the bottom
90% have not kept pace with higher costs. For the bottom 90%, rising rents,
higher property taxes, higher health insurance premiums, higher healthcare
co-pays and deductibles, soaring college tuition and so on, have squeezed
household budgets while household income has stagnated.
*No wonder the government wants to mask the real rate of inflation.* If it
was widely understood that inflation is reducing our purchasing power at an
annual rate of 7% while wages are rising at 1% or 2% if at all, people
might realize the Fed and other authorities have stripmined the many to
enrich the few.
*So what the Federal Reserve is actually whining about is not low
inflation--it's that high inflation isn't pushing wages higher like it's
supposed to.* In the simplistic models of conventional economics, inflation
is supposed to be a monetary function, i.e. a generalized secular dynamic
that pushes everything higher--not just prices, but wages, too.
*Alas, the world isn't as simple as the economists' models.* So what we
have instead is stagnating wages and soaring wealth-income inequality.
No wonder so many people reckon this was the real plan all along: it's
worked brilliantly for the eight years of "recovery", greatly enriching the
few at the expense of the many






















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