Is there really low inflation in the United States?

As usual, a chart depicts quickly the true sense of the situation. On the graph below, on the far right, is the "official" CPI figure publicized as the core inflation number - and more importantly used to calculate many cost-of-living increases for retirements and pensions.  Note the rather low 1.1% "official" increase year on year.

Then there are the actual prices of some illustrative commodities (those things that are the raw materials for food and transport).  It is obvious the major price increases during just the past year, especially with the grains. (thanks to the good folks at Casey Research for compiling the chart).

Of course, this type of chart does not include such rising costs as health care, entertainment or housing.  And it also does not include all the low cost plastic and tech stuff (imported from China) one can find at the big box stores.  And of course, in many parts of the country, housing has cratered severely.

However, I think all of us realize that in our day-to-day lives prices are certainly much higher than 1% more than last year this time.  It is not an illusion.  Economist John Williams notes that since WWII the ways that consumer inflation is calculated has been continually tinkered with.  Increasingly over the past 25 years  starting with Alan Greenspan's term at the Federal Reserve, the means of valuing the  "basket of goods" used to track inflation was continually adjusted by such games as geometric weighting, chaining, and the newer concept of core.  

Shown below is the actual consumer inflation using Williams' traditional calculation (SGS) used for decades through WWII before the political shenanigans (CPI-U) began as a regular pattern.  As you see below, reflecting some of the commodity prices increases above, inflation can be seen actually at about 8%.

For those who are really interested in the formulas and rationale behind this, you can visit the excellent Shadow Government Statistics site.  I've met John several times at conferences.  He is the real deal - not flashy, but providing a clear window into the world of often arcane government economic statistics.  An in-depth review of the various inflation manipulations (done under both Democrat and Republican administrations) is contained in this analysis from an early SGS newsletter.

What does this mean?? 

What is means is that if you are simply holding savings in US dollar cash or low interest certificates, you are losing about 5-7% a year in purchasing power.  To protect yourself and maintain wealth, you need to consider diversifying investments in "hard assets" for the next few years - land, metals, perhaps shares of companies profiting from commodity increases, or even foreign currencies from commodity rich countries (such as Canada or Australia).

Good News in Health and Prosperity

Famous statistician Hans Rosling creates a 4 minute tour de force with 200 years of human development statistics! Very good news against the backdrop of short-term economic crisis and disruption.

Thoughts About the Wikilinks Diplomatic Dump

As confidential U.S. diplomatic documents continue to enter the public domain, it is worth remembering that not everything that is written down in a government document, even (or especially) in a classified document, is necessarily true. "Truth telling" involves a bit more than trafficking in official records. Any historian or archival researcher knows that. So did the famous Soviet agent Kim Philby, who spied against Britain for decades until he escaped just in time to Moscow.  He addressed the issue in his 1968 book "My Silent War" (p. 255):

"It is difficult, though by no means impossible, for a journalist to obtain access to original documents. But these are often a snare and a delusion. Just because a document is a document, it has a glamor which tempts the reader to give it more weight than it deserves. This document from the United States Embassy in Amman, for example. Is it a first draft, a second draft or the finished memorandum? Was it written by an official of standing, or by some dogsbody with a bright idea? Was it written with serious intent or just to enhance the writer's reputation? Even if it is unmistakably a direct instruction to the United States Ambassador from the Secretary of State dated last Tuesday, is it still valid today? In short, documentary intelligence, to be really valuable, must come as a steady stream, embellished with an awful lot of explanatory annotation. An hour's serious discussion with a trustworthy informant is often more valuable than any number of original documents."

"Of course, it is best to have both," he added.

Finally the Fed Admits to a Foreign Bank Bailout with TARP

The initial story was that the Fed via its Foreign Exchange liquidity swap lines had only bailed out foreign Central Banks, which in turn took the money and funded their own banks. 

It turns out that is only half the story: we now know the Fed also acted in a secondary bail out capacity, providing over $350 billion in short term funding exclusively to 35 foreign banks, of which the biggest beneficiaries were UBS, Dexia and BNP. See the chart above - click to expand.

Since the funding provided was in the form of ultra-short maturity commercial paper it was essentially equivalent to cash funding. In other words, between October 27, 2008 and August 6, 2009, the Fed spent $350 billion in taxpayer funds to save 35 foreign banks. 

And here people are wondering if the Fed will ever allow stocks to drop: it is now more than obvious that with all banks leveraging their equity exposure to the point where a market decline would likely start a Lehman-type domino, there is no way that the powers that be will allow stocks to drop ever... 

Until such time that nature reasserts itself, the market collapses without the Plunge Protection Team being able to catch it, and the Fed is finally wiped out in one way or another.

Analysis by Tyler Durden

http://www.zerohedge.com/article/meet-35-foreign-banks-got-bailed-out-fed

Europe Debt - How A European Bailout Package Works

Using the Irish Bailout Package as an example...

It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich German tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.

The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. 

The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the pub. The publican slips the money along to the local “Lady of services” drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit. The “Lady of services” then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveler will not suspect anything. 

At that moment the traveler comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town. No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.

And that, Ladies and Gentlemen, is how a bailout package works.  Likely originator: IAN FRIZZEL

********

And for a true discussion of the "magic" involved:

And me? I live in Slovakia!

Taking A Radical Look at K-12 Education

There is a lot of talk, money and energy being focused on reforming education. A lot of it emphasizes standardization. The animated 5 minute lecture below was adapted from a talk given in 2008 at the RSA by Sir Ken Robinson, world-renowned education and creativity expert. Sir Ken Robinson asks how do we make change happen in education and how do we make it last?

The original hour long lecture is here.

Good News About Child Mortality

Hans Rosling is famous for his presentation of statistics in easily understandable visual forms. This short talk focuses on the 8 Millennium Development Goals and takes one sample area. This is a presentation sponsored by TED (Ideas Worth Spreading).

This time his topic is child mortality, with a brilliant overview of how we collect statistics, how to get child mortality rates down (educating girls accounts for fully half of the improvements), and a lot of good news on development. Really excellent demonstration on the use of statistics and the dangers of averages.

And it is nice to see sometimes that things are working!

Slaves to Debt

Is this what the banking game is all about?

Excerpt from the movie The International (2009)

Thoughts About U.S. Employment

As I've been listening to all the commentary and arguments about unemployment lately, the numbers seem confusing and hard to get a grasp on. What does it actually mean to have a 10% unemployment rate in actual jobs?

The current Census Bureau website indicates that the total population is just about 310 million people.   Of these, there are large numbers (approximately 38%) that are either too young or now retired to be in the workforce.  This interesting graph shows the relative breakout of the US population (from the 2000 census) based on age and gender.

This brings us to a total potential US workforce of maybe 180 million people, although this does not include disabled or people otherwise out of the job market. From numbers I can find, it seems that full employment would be about 150 million people.  This graph from Economagic shows the growth of the non-farmer employed labor force over a 60 year period, topping out about 2007.

This chart below shows a comparison of  "official" unemployment rates since 1975.

However, the work of John Williams, of ShadowStats.com, tracks statistics according to former calculation models used up until the mid-1990s. His data indicates that the real unemployment rate once we consider those people who have dropped out of the labor pool and are underemployed is probably much higher at close to 22%!

This means that rather than the almost 15 million "officially" unemployed, there are actually almost 33 million people without jobs currently.  That is almost 1 in 4 of people in the US who are willing and able to work.  Well, perhaps given the many government subsidies, a certain group of these may not be "willing" anymore.

A very frightening situation, and one kept well hidden with media focus on either "doctored" macro statistics or focus on micro cases.

And, in any case, those who are employed? What are they doing these days? The chart below shows the greatest percentage of current top 10 job types... about 26 million people  in total.  Probably to be expected -- these jobs (other than some customer service reps) cannot be outsourced to Asia.

Special thanks to Casey Research for the creation of some of the charts above compiled from government data sources.