Thursday, October 04, 2007

A Useful Discussion of "CPI"

I'm not a believer in the "CPI Lie" disseminated monthly by the Gummint, and haven't been one since it was made clear that the Clinton Administration re-jiggered the formula to 'define CPI down' in the early '90's. (The reason that happened was simple: it reduced the Gummint's Social Security payments obligations, which are based on CPI.)

Big Picture's Ritholtz has the same jaundiced view--but he also has the computational abilities (and neat chip-based-tools) to make the case more clearly.

You'll have to go to the links he provides; but here are some key bits:

...the Fed's focus on the core rate has significant repercussions for policy. Additionally, the debasement of the U.S. dollar means that U.S. have seen their purchasing power eroded just as surely as if inflation were even higher.

and this:

Since late 2002, the core rate dramatically misrepresented actual inflation. This led to the Fed taking rates down too low, and leaving them there too long. The repercussions of this have been very significant, and are still being felt today -- from the credit crunch, to $80 dollar crude oil, to huge increases in food prices, to unaffordable housing.

The bottom line is that
ultra low rates, and big increases in money supply, sent the U.S. dollar to 15 year lows, raised the costs of all goods denominated in dollars, and lowered the standard of living for many people -- perhaps most -- living in the U.S.

Which relates directly to my dissing of "Easy Al" Greenspan. Look again, HARD, at the M3 chart in Ritholtz' post...

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