REDNews January 2015 - Southeast Cover January 2015

REDNews The last thing the world’s largest debtor, the United States government, wants is higher interest rates. That probably means that a more realistic CPI will need to be preceded by a return to fiscal sanity in Washington—and really, what are the chances of that? enjoyment the consumer receives from changed or improved features (as arbitrarily determined by the BLS) • ggressive use of seasonal adjustment factors— A for example, if gasoline prices usually go up in the summer, they are reduced so that they do not distort (in other words increase) the index • se of a calculated rental value to reflect housing U costs for home owners The effect of all these changes is to drastically understate the rate of inflation. Why might that be? • ocial Security payments are indexed to CPI. S Rather than actually address the costs and burdens of a program that represents a huge outflow of tax dollars, it is quietly debased. • Income tax brackets are raised every year to reflect increases in CPI. Instead of actually passing a tax increase every year to raise more revenue, taxpayers are forced into higher brackets as their nominal income increases exceed the CPI adjustments. • any federal employees have wage increases M tied to CPI. Each year they are forced to work for lower real wages as their salaries fail to keep pace with inflation. The government has a huge financial interest—increasing its revenue and lowering its expenses—to lie about inflation, but the chicanery runs deeper than this. Think about the current state of the economy: The BLS and other government agencies report macroeconomic statistics in currency, figuring in retail sales, industrial production, durable goods orders, and many other factors. Those numbers are all adjusted to reflect real growth by subtracting the rate of inflation. Real retail sales for October 2014 reflected an increase of 2.45 percent when adjusted for the 1.7 percent annual inflation rate. But what if the rate of inflation is 5.2 or 9.4 percent? In both cases real retail sales contracted, in the latter case dramatically. So, what is the real rate of inflation? There’s a statistical service that calculates CPI in the fashion utilized both prior to the Reagan Administration change and prior to the Clinton Administration changes: Shadow Government Statistics (www. shadowstats.com). Its calculation for October 2014, utilizing the pre-Reagan methodology, is a 9.4 percent annual inflation rate. The post-Reagan, pre-Clinton calculation is a 5.2 percent annual rate. So which inflation rate do we believe: 1.7 percent, 5.2 percent. or 9.4 percent? Since the lowest rate is the product of a system designed to underreport inflation, it certainly can’t be correct. The other rates are the product of professional statisticians attempting to actually measure inflation and as such are far more credible. The officially reported CPI is a fraction of the real rate of inflation, yet it permeates our economy. Many private and nonfederal government employees have their cost of living increases tied to the official rate. Thus they are experiencing a serious decline in their real incomes, which becomes more acute with each passing year. Pensioners and Social Security recipients are in more dire straits, since they cannot alleviate the problem by changing to a higher paying job or negotiating a higher salary. It is likely that most middle-income Americans are suffering through a period of protracted decline in their standard of living. This is occurring against a backdrop of an economy being promoted by both Washington and Wall Street as prosperous and expanding. Those claims don’t pass scrutiny if the numbers supporting them are adjusted for an inflation rate that is in fact a multiple of the officially reported rate. Can the methodology be corrected? The problem could be resolved by Congressional action: Simply pass a law requiring a return to the pre-1980 methodology. But that’s unlikely to happen. The United States government has run large fiscal deficits for many years. Much of the debt to cover these deficits has been acquired by the central bank, the Federal Reserve Corporation, and the purchases are paid for by creating new money. It’s this increasing money supply that has been the cause of persistent inflation. Of course, there’s one other benefit we haven’t yet mentioned the government receives by reporting minimal inflation numbers, and that’s a dampening of pressure to increase interest rates. The last thing the world’s largest debtor, the United States government, wants is higher interest rates. That probably means that a more realistic CPI will need to be preceded by a return to fiscal sanity in Washington—and really, what are the chances of that? REDNews.com | 29

REDNews January 2015 - Southeast Cover January 2015 | Page 29