REAL CPI - Inflationist house of straw !

[icm63]

The con that is the USA CPI ....

SOURCE:
http://www.harpers.org/archive/2008/05/0082023
http://asociologist.wordpress.com/20...r-price-index/

So, story part I goes back to the Reagan administration and changes made in the CPI that helped lower interest rates:

In 1983, under the Reagan Administration, inflation was further finagled when the Bureau of Labor Statistics decided that housing, too, was overstating the Consumer Price Index; the BLS substituted an entirely different “Owner Equivalent Rent” measurement, based on what a homeowner might get for renting his or her house. This methodology, controversial at the time but still in place today, simply sidestepped what was happening in the real world of homeowner costs.

But, as we know from (good citation needed), rental prices and home prices diverged fairly dramatically in the past few years. That’s one of the signs we missed in the whole housing price bubble. Because the house price wasn’t in the CPI any more, the measure was lower than it would have been and thus interest rates were lower, which in turn fueled the bubble, as Phillips notes (citing a law professor):

As Robert Hardaway, a professor at the University of Denver, pointed out last September [2007], the subprime lending crisis “can be directly traced back to the [1983] BLS decision to exclude the price of housing from the CPI. . . . With the illusion of low inflation inducing lenders to offer 6 percent loans, not only has speculation run rampant on the expectations of ever-rising home prices, but home buyers by the millions have been tricked into buying homes even though they only qualified for the teaser rates.”

---

Maybe the true USA CPI is closer to this chart...
cpi-case-shiller1.jpg
SOURCE : http://howestreet.com/articles/index...ticle_id=10265

So the debate for deflation is it really over ? Can those that support inflation really stand up and say that CPI evidence is rock solid?
Sure EJ food inflation is does NOT support the deflation argument, but I think some how the house is more of larger asset in the consumer economy than food.
NO REAL INFLATION ANY TIME SOON !!!

[don]

Re: REAL CPI - Inflationist house of straw !

How much of an impact does falling housing prices have on an economy with falling wages and salaries, rising unemployment, and the apparent end of cheap credit? In practical terms, not much. With more and more living paycheck to paycheck, or coming up short, falling housing prices- still too high- are of little fiscal solace. If food prices and energy climb, to 80% of the country that will be inflation.

[flintlock]

Re: REAL CPI - Inflationist house of straw !

Well obviously what we have here is both inflation and deflation going on at the same time. The real question is what sectors have the most overall impact. When the heating bill exceeds the rent, my guess is people will scream inflation. The house note for a lot of folks is no longer the biggest expense. A lot have no mortgage( 1 in 3). Health care, utilities, taxes, all are continuing to rise, regardless of what home prices do.

I'd really be interested to hear more on this issue, because like MEGA, I want my promised inflation dammit!

[icm63]

Re: REAL CPI - Inflationist house of straw !

Don,

Your point is that, its not the level of the measure, its the rate of change of the measure in time that hurts.

True..

Hence house prices have fallen hard and sharpe in time.

[ThePythonicCow]

Re: REAL CPI - Inflationist house of straw !

NO REAL INFLATION ANY TIME SOON !!!

INFLATION in what ?!?

When the currency denominated prices of AA go up and the prices of ZZ go down, we end up with those people who are focused on the price of AA seeing INFLATION and those focused on ZZ seeing (DE/DIS/NO REAL) FLATION.

Prices are sloshing about, some up, some down.

So the various *flation words need to be qualified. You need to specify what it is that you're pricing.

(As to what the US government CPI statistics will show, that's more of a prediction that the government will continue to lie by showing us a small rising number. That's a political prediction and little else.)

For the last couple of years, prices associated with debt purchases have fallen, as the debt bubble collapsed.

At some point we (Americans, at least) risk the iTulip POOM when prices associated by us with imports fall, if and when the dollar's exchange rate collapses.

[sunskyfan]

Re: REAL CPI - Inflationist house of straw !

You are seeing a collapse of the virtual economy. Anything with a credit market amplifier is deflating as its REAL market value is being measured. Houses, cars, computers and stocks once the latest round of government fund injection plays itself out are among these. Things less sensitive to the credit market amplifier such as food are remaining stable or going up because of disruption of the efficacy of the economy to move it where it needs to be. Not because of money supply.

[kingcopper]

Re: REAL CPI - Inflationist house of straw !

It is scarcity that will create the 21st century inflation that we as a group worry about. As retailers reduce inventory and as many go out of business, most items will command more of the fewer dollars in our economy. This is the basic mechanism behind our horrid future. House and auto prices could continue to deflate while everything we need from day to day shoots to the moon. As was said, we'll know as soon as the utility bills are higher than the rent or when we pay so much for our milk that we have to water it down!

[sunskyfan]

Re: REAL CPI - Inflationist house of straw !

I would agree with this analysis. The question then becomes is there anyway to buffer wealth against that phenomena (such as gold) and I think not.

[jtabeb]

Re: REAL CPI - Inflationist house of straw !

It is scarcity that will create the 21st century inflation that we as a group worry about. As retailers reduce inventory and as many go out of business, most items will command more of the fewer dollars in our economy. This is the basic mechanism behind our horrid future. House and auto prices could continue to deflate while everything we need from day to day shoots to the moon. As was said, we'll know as soon as the utility bills are higher than the rent or when we pay so much for our milk that we have to water it down!

True, 'dat!

[icm63]

Re: REAL CPI - Inflationist house of straw !

Inflation from scarcity..

In too early can be wrong !

NOT any time soon.

Sure inflation will arise, however timing is the trick !

[bart]

Re: REAL CPI - Inflationist house of straw !

The con that is the USA CPI ....

SOURCE:
http://www.harpers.org/archive/2008/05/0082023
http://asociologist.wordpress.com/20...r-price-index/


Maybe the true USA CPI is closer to this chart...

That chart is from (blogger whose name shall not be mentioned) and in my opinion is an attempt to avoid the fine work of John Williams at shadowstats.com, which is anathema to deflationistas. I urge extreme caution in using that chart for anything serious.

More specifically, John Williams corrections to CPI start before all the horse puckey about OER was added to CPI calculations in 1982, and are therefore immune to them - an inconvenient truth to the various deflationistas or those who try to ignore, criticize or denigrate John Williams work. Additionally, that particular blogger was railing on just a few years ago about CPI & housing prices, but going 180 degrees the other way.

One last thought - the Williams CPI is not necessarily intended to present a perfect picture of current CPI but rather to keep the series consistent over long periods of time so that comparisons on an apples to apples basis can be made.

Personally, my own research shows the current SGS correction to be about 3% too high and that "real" inflation is around 3-4% when broad apples to apples comparisons are made... and before metalman or Fred goes into their "mode", I also note that CPI does not and never has fairly represented inflation of goods, services and asset inflation/disinflation/deflation.

[icm63]

Re: REAL CPI - Inflationist house of straw !

Bart,

Valid response.

Conclusion : CPI, is AWOL !

[bart]

Re: REAL CPI - Inflationist house of straw !

Bart,

Valid response.

Conclusion : CPI, is AWOL !

Indeed... and the only thing that in my opinion even comes close to measuring inflation or deflation is Finster's FDI, but it's a world wide measure.

Even my "total money supply" charts with debt deflation adjustments are incomplete, since they don't take velocity into account... but stay tuned for more thrilling chart adventures one of these days/weeks.

[a warren]

Re: REAL CPI - Inflationist house of straw !

This has already been dealt with. And what never gets mentioned is replacement cost of housing. Any idea how much it would cost to rebuild your McMansion now?


"In the interest of maintaining forward momentum, to build on our past discoveries, starting next week we will no longer debate purveyors of economic thinking that does not include accounting concepts. We will not debate flat earth economics, or creationism, or any other non-scientific theory. Adherents to flat earth economics can be identified by the following traits:

• Do not distinguish between asset price inflation and deflation within the FIRE Economy and goods and services price inflation and deflation within the Production/Consumption Economy.
• Ascribe all price inflation and deflation to a single root cause, such as the domestic money supply, without accounting for the effects of exchange rates and balance sheets.
• Do not have a clear concept of debt deflation and its impact on the economy. (Some mainstream economists may refer to the result as a “balance sheet recession.”)
• Invent nonsense terms like “bi-flation” and “deflation scare” because they do not have an accounting and cash flow perspective that defines predictable processes within the finance-based economy.

If we have any flat earthers among us here in the iTulip community, we look forward to you catching up to us later. If there is anything unclear about the concepts we have described here, let me know and we’ll take care of them here on this thread."

[flintlock]

Re: REAL CPI - Inflationist house of straw !

It will be more than just scarcity causing inflation, right? Wouldn't all this money being created out of thin air have something to do with it? Because I seriously doubt the budget deficit is going to be paid off by cuts and taxes. Someone educate me.:confused: