In a currency war that is escalating, over time there is no doubt the U.S. will eventually come out the winner, in the sense that it will lose more of its value than competing currencies, which will devastate the economy.
Peter Schiff, CEO of Euro Pacific Capital, said this:
"There is a currency war going on," Schiff said at the Inside ETFs conference. "The irony of a currency war which makes it different from other wars is the object is to kill itself. Unfortunately, I think the U.S. is going to win the currency war."
"We're broke. We owe trillions. Look at our budget deficit, look at the debt to GDP (ratio), the unfunded liabilities," Schiff added. "If we were in the euro zone they would kick us out."
Since the Federal Reserve is artificially propping up the U.S. economy, it's only a matter of time before the negative consequences kick in, led by the ongoing debasement of the U.S. dollar.
Schiff also rightly notes the consumer price index isn't made to measure inflation, but rather to hide it through manipulation. He calls the CPI a "total fraud." Schiff says other similar indexes are just as fraudulent as the CPI.
Recommendations from Schiff are to continue to hedge inflation and global uncertainty and unrest with precious metals, especially gold.
Showing posts with label CPI. Show all posts
Showing posts with label CPI. Show all posts
Saturday, February 16, 2013
Thursday, January 10, 2013
Peter Schiff on CPI Illusion
Peter Schiff blasted the idea that inflation is under control during the unprecedented money expansion we're going through. Government court economist Paul Krugman has used the meaningless Consumer Price Index (CPI) and its alleged sub 2.5% increases as proof inflation hasn't been a factor during this period of time.
Most people following the CPI know it's a joke, but most in the financial media continue to use the statistics proffered by the Index as based on reality.
Schiff points out two sectors to confirm this is so.
"However, there is plenty of evidence to suggest that the CPI is essentially meaningless as it woefully under reports rising prices.
"Magazines and newspapers provide a good case in point. The truth has not been exposed through the economic reporting that these outlets provide, but in the prices that are permanently fixed to their covers. For instance, from 1999 to 2002 the Bureau of Labor Statistic's (BLS) "Newspaper and Magazine Index" (a component of the CPI) increased by 37.1%. But a perusal of the cover prices of the 10 most popular newspapers and magazines (WSJ, Washington Post, Time, Sports Illustrated, U.S. News & World Report, Newsweek, People, NY Times, USA Today, and the LA Times) over the same time frame showed an average cover price increase of 131.5% (3.5 times faster than the BLS' stats). This is not even in the same ballpark.
"Another stunning example is found in health insurance costs, which is a major line item for most families. According to the BLS we can all breathe easy on that front because their "Health Insurance Index" increased a mere 4.3% (total) in the four years between 2008 and 2012. Interestingly, over the same time, the Kaiser Survey of Employer Sponsored Health Insurance showed that the cost of family health insurance rose 24.2% (5.5 times faster). But even if the BLS had reported higher costs, it wouldn't have made much of a difference in the CPI itself. Believe it or not, health insurance costs are assigned a weighting of less than one percent of the overall CPI. In contrast, the Kaiser Survey revealed that in 2012 the average total cost for family health insurance coverage was $15,745, or almost one third of the median family income.
"If the inaccuracy of these two components were consistent with the rest of the CPI's components, inflation could now be reported in double-digits!
Not only is this true, but the CPI, over the years, has changed its methodology in order to ensure the majority of prices that would more accurately reflect higher prices are taken out of the equation.
"The newer CPI methodologies are designed to report not just on price movements, but on spending patterns, consumer choices, substitution bias, and product changes. In other words, the metrics have been altered to track not so much the cost of things, but the cost of living (or more accurately, the cost of surviving). But if you simply focus on price, especially on those staple commodity goods and services that haven't radically changed in quality over the years, the under reporting of inflation becomes more apparent."
To highlight how this impacts the reporting of inflation, Schiff did some research on 20 common financial transactions over two different ten-year periods. The focus was on the decades when the monetary policy of the Federal Reserve was loose.
"As reported in our Global Investor Newsletter, we selected BLS price changes for twenty everyday goods and services over two separate ten-year periods, and then compared those changes to the reported changes in the Consumer Price Index (CPI) over the same period. (The twenty items we selected are: eggs, new cars, milk, gasoline, bread, rent of primary residence, coffee, dental services, potatoes, electricity, sugar, airline tickets, butter, store bought beer, apples, public transportation, cereal, tires, beef, and prescription drugs.)
"We know that people do not spend equal amounts on the above items, and we know their share of income devoted to them has changed over the decades. But as we are only interested in how these prices have changed relative to the CPI, those issues don't really matter. We chose to look at the period between 1970 and 1980 and then again between 2002 and 2012, because these time frames both had big deficits and loose monetary policy, and they straddle the time in which the most significant changes to the CPI methodology took effect. And while the CPI rose much faster in the 1970's, the degree to which the prices of our 20 items outpaced the CPI was much higher more recently.
"Between 1970 and 1980 the officially reported CPI rose a whopping 112%, and prices of our basket of goods and services rose by 117%, just 5% faster. In contrast between 2002 and 2012 the CPI rose just 27.5%, but our basket increased by 44.3%, a rate that was 61% faster. And remember, this is using the BLS' own price data, which we have already shown can grossly under-estimate the true rate of increase. The difference can be explained by how CPI is weighted and mixed. The formula used in the 1970's effectively captured the price movements of our twenty everyday products. But in the last ten years it has been quite a different story."
The conclusion is the CPI can no longer be trusted or considered a valid measure of real inflation. Many people I talk to on the street know we're in a high inflationary period, as they point to the much higher costs of engaging in transactions and buying needed products and services. They don't know how to describe it in the terms readers here would know and use, but they are very much aware we're living in a significant inflationary economy.
Skewing data using smoke and mirrors can't hide what we pay in real prices.
Source
Most people following the CPI know it's a joke, but most in the financial media continue to use the statistics proffered by the Index as based on reality.
Schiff points out two sectors to confirm this is so.
"However, there is plenty of evidence to suggest that the CPI is essentially meaningless as it woefully under reports rising prices.
"Magazines and newspapers provide a good case in point. The truth has not been exposed through the economic reporting that these outlets provide, but in the prices that are permanently fixed to their covers. For instance, from 1999 to 2002 the Bureau of Labor Statistic's (BLS) "Newspaper and Magazine Index" (a component of the CPI) increased by 37.1%. But a perusal of the cover prices of the 10 most popular newspapers and magazines (WSJ, Washington Post, Time, Sports Illustrated, U.S. News & World Report, Newsweek, People, NY Times, USA Today, and the LA Times) over the same time frame showed an average cover price increase of 131.5% (3.5 times faster than the BLS' stats). This is not even in the same ballpark.
"Another stunning example is found in health insurance costs, which is a major line item for most families. According to the BLS we can all breathe easy on that front because their "Health Insurance Index" increased a mere 4.3% (total) in the four years between 2008 and 2012. Interestingly, over the same time, the Kaiser Survey of Employer Sponsored Health Insurance showed that the cost of family health insurance rose 24.2% (5.5 times faster). But even if the BLS had reported higher costs, it wouldn't have made much of a difference in the CPI itself. Believe it or not, health insurance costs are assigned a weighting of less than one percent of the overall CPI. In contrast, the Kaiser Survey revealed that in 2012 the average total cost for family health insurance coverage was $15,745, or almost one third of the median family income.
"If the inaccuracy of these two components were consistent with the rest of the CPI's components, inflation could now be reported in double-digits!
Not only is this true, but the CPI, over the years, has changed its methodology in order to ensure the majority of prices that would more accurately reflect higher prices are taken out of the equation.
"The newer CPI methodologies are designed to report not just on price movements, but on spending patterns, consumer choices, substitution bias, and product changes. In other words, the metrics have been altered to track not so much the cost of things, but the cost of living (or more accurately, the cost of surviving). But if you simply focus on price, especially on those staple commodity goods and services that haven't radically changed in quality over the years, the under reporting of inflation becomes more apparent."
To highlight how this impacts the reporting of inflation, Schiff did some research on 20 common financial transactions over two different ten-year periods. The focus was on the decades when the monetary policy of the Federal Reserve was loose.
"As reported in our Global Investor Newsletter, we selected BLS price changes for twenty everyday goods and services over two separate ten-year periods, and then compared those changes to the reported changes in the Consumer Price Index (CPI) over the same period. (The twenty items we selected are: eggs, new cars, milk, gasoline, bread, rent of primary residence, coffee, dental services, potatoes, electricity, sugar, airline tickets, butter, store bought beer, apples, public transportation, cereal, tires, beef, and prescription drugs.)
"We know that people do not spend equal amounts on the above items, and we know their share of income devoted to them has changed over the decades. But as we are only interested in how these prices have changed relative to the CPI, those issues don't really matter. We chose to look at the period between 1970 and 1980 and then again between 2002 and 2012, because these time frames both had big deficits and loose monetary policy, and they straddle the time in which the most significant changes to the CPI methodology took effect. And while the CPI rose much faster in the 1970's, the degree to which the prices of our 20 items outpaced the CPI was much higher more recently.
"Between 1970 and 1980 the officially reported CPI rose a whopping 112%, and prices of our basket of goods and services rose by 117%, just 5% faster. In contrast between 2002 and 2012 the CPI rose just 27.5%, but our basket increased by 44.3%, a rate that was 61% faster. And remember, this is using the BLS' own price data, which we have already shown can grossly under-estimate the true rate of increase. The difference can be explained by how CPI is weighted and mixed. The formula used in the 1970's effectively captured the price movements of our twenty everyday products. But in the last ten years it has been quite a different story."
The conclusion is the CPI can no longer be trusted or considered a valid measure of real inflation. Many people I talk to on the street know we're in a high inflationary period, as they point to the much higher costs of engaging in transactions and buying needed products and services. They don't know how to describe it in the terms readers here would know and use, but they are very much aware we're living in a significant inflationary economy.
Skewing data using smoke and mirrors can't hide what we pay in real prices.
Source
Friday, January 22, 2010
Commodity Prices Rise Hong Kong
Commodity Prices Rise in Hong Kong
Confirming what a number of investors and economists already know, the consumer price index in Hong Kong rose in December, primarily driven by rising food prices and other commodity prices.
The composite consumer price index in December increased 1.3% year over year. That followed on the footsteps of price increases of 0.5% in November, giving rise to fears inflation could continue growing for some time, something many have been concerned about after central banks around the world continued to run their money printing presses.
Attempting to downplay the price increases in commodities and food, the Chinese government stated this: "As the economic recovery, both locally and globally, is still at the early stage, the prevailing excess capacity on the supply side should help to contain the upward pressures on costs and prices."
Some Chinese economists disagreed with the official party line, saying increases in energy and food prices, and possibly other commodities could push consumer prices even higher than they're growing now.
Estimates are prices could increase by 3.7 percent in 2010 based on what was already said plus rental increases.
Commodity Prices Rise in Hong Kong
Confirming what a number of investors and economists already know, the consumer price index in Hong Kong rose in December, primarily driven by rising food prices and other commodity prices.
The composite consumer price index in December increased 1.3% year over year. That followed on the footsteps of price increases of 0.5% in November, giving rise to fears inflation could continue growing for some time, something many have been concerned about after central banks around the world continued to run their money printing presses.
Attempting to downplay the price increases in commodities and food, the Chinese government stated this: "As the economic recovery, both locally and globally, is still at the early stage, the prevailing excess capacity on the supply side should help to contain the upward pressures on costs and prices."
Some Chinese economists disagreed with the official party line, saying increases in energy and food prices, and possibly other commodities could push consumer prices even higher than they're growing now.
Estimates are prices could increase by 3.7 percent in 2010 based on what was already said plus rental increases.
Commodity Prices Rise in Hong Kong
Friday, June 13, 2008
Corn Prices Explode to Record Highs
While food prices dropped last month, the continuing surge of corn prices may spur spur food prices higher, as the ethanol fiasco continues to haunt lawmakers and consumers.
The reason given for the price increase is the weather in the midwest, but that's in reality a secondary cause, as the subsidy's afforded the industry by lawmakers is the underlying reason prices continue to increase.
With so much corn going to dubious ethanol production, it has caused an artificial demand which has caused prices to grow. As a result, every time something happens in the supply chain, it is exasperated because of the ethanol foolishness.
Corn reached a record price of $7.30 a barrel on the CBOT Friday, the sixth day in a row it broke a record.
Producers of meat are especially concerned as animal feed costs will rise, causing them to raise their prices as well.
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