Not Even Harry Browne Thought It Was Going To Be This Bad

[Gumby]

I don't believe in Shadowstats nor the CPI. I believe my wallet.

I can relate to that. I hear you. I'm just saying that inflation is not rampant right now.

At the same time I don't believe the dollar "will collapse" simply because there is no alternative in the world now that the Euro has been shown to be the emperor with no clothes.

You must have misunderstood me. I don't think the dollar will collapse. I was just saying that if it did collapse it could cause a doomsday scenario. I could be wrong, of course. But, my point is that one should be prepared for that possibility if they are predicting a dollar collapse (and I'm not).

[Mdraf]

The fed doesn't set what CPI is. The fed uses a calculation called "core inflation" that doesn't include food or fuel because they're too volatile to base policy on. CPI includes food/fuel, and independent measures of inflation such as the MIT billion price project are right in line with CPI.

That's right and the calculation is even more complex than that with inclusion of "perceived value" etc. But that's not my point. The CPI should be but isn't  a true measure of life's costs, whether these are volatile or not. Back in the '70 I lived in a country with approximately 600-700% inflation.  Nothing in stores had a price. You'd ask for a price and they would give you one "till 5pm today".  Eventually all prices were quoted in US dollars and converted at the time of purchase.  That's when the failure of a true CPI hurts. But it begins with small steps such as the ever increasing frequency to the change in the calculation formula.

[Gumby]

The BLS (Bureau of Labor and Statistics) really does publish more accurate inflation reports (in terms of personal agony). For instance, here are the official inflation numbers for "CPI Less Shelter". In other words, this is what inflation looks like if you include Food, Energy and remove the cost of housing...

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So, this is what many consumers probably feel when they try to sense their own personal inflation rate. Yes, it's often a bit higher than Core CPI. But, it's just not indicative of the real Macro environment. CPI-Less Shelter is also too volatile for economic planning.

So, as you can see, the official inflation numbers aren't a government conspiracy. The data is there if you know where to look.

[Mdraf]

You must have misunderstood me. I don't think the dollar will collapse.

Not you. Someone else.  I am not in the Austrian camp about the doomsday scenario but i am not in yours either. You seem to assert that the Fed's purchase of bonds is somehow an Enronian off-balance-sheet event which has no bearing on the private sector and I disagree.

[Gumby]

You seem to assert that the Fed's purchase of bonds is somehow an Enronian off-balance-sheet event which has no bearing on the private sector and I disagree.

No. I never said it has no bearing on the private sector. Of course it does. It just doesn't create rampant inflation in the way Libertarian666 claimed it did — POMO has never had that kind of effect. Nor is POMO the only demand for T-Bonds. Everyone's savings accounts are regularly invested/drained into T-Bonds whether people know it or not.

POMO is a tool used to conduct monetary policy (targeting rates, swapping reserves for assets) — hardly anything worth getting worked up about.

[Mdraf]

You seem to assert that the Fed's purchase of bonds is somehow an Enronian off-balance-sheet event which has no bearing on the private sector and I disagree.

No. I never said it has no bearing on the private sector. Of course it does. It just doesn't create rampant inflation in the way Libertarian666 claimed it did — POMO has never had that kind of effect. Nor is POMO the only demand for T-Bonds. Everyone's savings accounts are regularly invested/drained into T-Bonds whether people know it or not.

True but it's a circular argument. They invest in T-Bonds because they're safe. And the reason they're safe is because the fed will be there to buy them!

[Gumby]

True but it's a circular argument. They invest in T-Bonds because they're safe. And the reason they're safe is because the fed will be there to buy them!

No. My argument is that T-Bonds would be safe even if the Fed didn't buy them. We know this because people still buy T-Bonds even when the Fed stops buying them (when the Fed wants rates to float), such as after QE2 ended. We know this because people have a desire to save their cash for a return in a savings account, which gets invested/drained into T-Bonds. We know this because Primary Dealers are required to drain their excess reserves into T-Bonds. T-Bonds are the only way to convert cash reserves into a (perceived) risk-free return. So, there is a real demand for them. People want to convert their cash into T-Bonds. Where else are you going to park cash reserves? T-Bonds are basically just government savings accounts.

Unless you are arguing that people don't want their dollars right now. If people don't want their dollars, I'll gladly take them

[MediumTex]

Welcome to the forum.  Thanks for joining us.

In answer to the question about "why is there no inflation after 5 years"... surely you've been to the grocery store,

Food prices have increased at a rate of about 2% per year since 2008, or about 11.44% over the entire five year period (starting value=209, ending value=236).

filled your car with gas

Gas prices are lower today than they were five years ago.

and paid utility bills.

The price of natural gas is a pretty good proxy for the price of electricity (since so much U.S. electricity is produced by natural gas) and obviously many homes use natural gas for heating as well.  My own utility bills have mostly gone down in recent years, which isn't surprising considering that the price of natural gas has declined over 60% over the last five years.

What the Fed sets as the rate is artificial and only intended to keep the CPI down for government deficit purposes.  I look forward to the onslaught ! Bring it on

There isn't any onslaught.  Just look at the data above and tell me if it looks like inflation figures are being artificially suppressed.  It seems to me that the Fed WANTS inflation.  Why would the government make it look like there wasn't any inflation when inflation is exactly what the government (acting through the Fed) appears to want?

When talking about inflation, really the big daddy commodity to follow is oil, since the price of oil trickles down into the price of almost everything that an economy produces.  Guess where we are with today's oil prices at a little over $100 per barrel?  About where we were five years ago.

[Mdraf]

Never mind your graphs. As I said earlier I beileve my wallet.  Look at your grocery bill and look at your utility bills. Also you may want to look at your insurance bill and possibly (gasp!) at your medical insurance bills

[Xan]

I believe MT did provide much of what you're asking for, with his personal anecdotes about his bills.  I'm not sure why two personal anecdotes are better than data, but whatevs.

[Mdraf]

I believe MT did provide much of what you're asking for, with his personal anecdotes about his bills.  I'm not sure why two personal anecdotes are better than data, but whatevs.

Because I personally subscribe to Benjamin Disraeli's motto: "There are three kinds of lies: lies, damned lies, and statistics."  and I'm too lazy to hunt the web for charts showing the exact opposite (which i'm sure exist.)

[MediumTex]

Never mind your graphs. As I said earlier I beileve my wallet.  Look at your grocery bill and look at your utility bills. Also you may want to look at your insurance bill and possibly (gasp!) at your medical insurance bills

Okay.

My grocery bill has increased modestly.

My utility bills have declined.

My car and homeowners insurance bills have declined because I changed companies after my old one raised prices to a level I wasn't willing to pay.

My health insurance premiums have increased significantly, but I think we can all agree that the cost of health care isn't the result of the Fed's actions over the last five years. 

Due to the decline in interest rates and the items I posted above, my personal overall cost of living is lower today than it was five years ago.  My house payment is lower, my utility bills are lower, my insurance costs are lower, my gas and grocery bills are flat or slightly higher and my cost of health care is higher, but not enough to offset the other declines outlined above.

That's just what's happening with my own wallet.

[Mdraf]

In that case I believe you and I concede the point, even though, somehow, it doesn't match my case.
PS my argument was in regards to the faux CPI, not the Fed's inflation

[Pointedstick]

Never mind your graphs. As I said earlier I beileve my wallet.  Look at your grocery bill and look at your utility bills. Also you may want to look at your insurance bill and possibly (gasp!) at your medical insurance bills

Okay.

My grocery bill has increased modestly.

My utility bills have declined.

My car and homeowners insurance bills have declined because I changed companies after my old one raised prices to a level I wasn't willing to pay.

For what it's worth, this is exactly my experience as well, with the addition that my medical insurance costs have increased only very modestly.

[MediumTex]

I believe MT did provide much of what you're asking for, with his personal anecdotes about his bills.  I'm not sure why two personal anecdotes are better than data, but whatevs.

Because I personally subscribe to Benjamin Disraeli's motto: "There are three kinds of lies: lies, damned lies, and statistics."  and I'm too lazy to hunt the web for charts showing the exact opposite (which i'm sure exist.)

But personal experience validated by statistics is far different than someone with a theory who is looking for data from any source to help make the theory seem more plausible.

I personally experienced reduced expenses.  I looked at the data to understand why this was the case and found that the data provided a good explanation, and then I shared it all here.  I don't know how much more you can ask for than that.

If you think that using statistics in that way is misleading, please tell me why.

Do you disagree that gas prices are the same as they were five years ago?

Do you disagree that the price of natural gas is WAY lower than it was five years ago?

Do you disagree that due to declining interest rates millions of people have seen their house payments go down by refinancing?

Finally, and this is perhaps the most important question, by what percentage have your own wages increased in the last five years?  The reason I ask this is that we know that over longer periods price inflation of goods and services can never outpace wage growth by too much or people will simply run out of money to pay higher prices and the economy will tip into recession, which puts strong downward pressure on prices.

I'm just trying to offer a perspective that you will never hear on TV, though it is strongly tied to reality.

[Gumby]

In that case I believe you and I concede the point, even though, somehow, it doesn't match my case.

I'm not suggesting this is you, but interestingly the top 1% in the US have seen a LOT of inflation. As the rich get richer, the cost of luxury goods has supposedly gone up considerably over the past few years...

http://www.juliusbaer.asia/htm/1647/en_ ... -Index.htm
http://www.ft.com/cms/s/0/f7f71e80-da62 ... z2YluA9fav

Again, not suggesting this is you, but it's not so easy for people to just compare wallets and come to a conclusion.

[MediumTex]

In that case I believe you and I concede the point, even though, somehow, it doesn't match my case.
PS my argument was in regards to the faux CPI, not the Fed's inflation

Have you refinanced your mortgage in the last five years?  If so, didn't that reduce your housing expenses?  If you rent, then this reduced expense item would apply to you.

I would say shop around for car insurance from companies that don't advertise on TV.  They are all cheaper because they don't have to buy all of that TV time for their dumb commercials.

All I am really saying is that much of the "inflation is rampant" narrative just doesn't match up that well with reality.

One item that has definitely seen strong price inflation is the McDonald's menu.  A double quarter pounder with tax is now over $5.00 (that's not the combo, it's just the sandwich).

[Xan]

As the rich get richer, the cost of luxury goods has supposedly gone up considerably over the past few years...

This seems like a pretty strong built-in negative feedback loop, preventing runaway wealth by a few.  Poor people who build the rich people's yachts are able to charge more and more for their services.

[Xan]

Have you refinanced your mortgage in the last five years?  If so, didn't that reduce your housing expenses?  If you rent, then this reduced expense item would apply to you.

This can be a huge savings.  I refinanced about a month ago and got 2.5%.  Big drop in the monthly housing expense.

[Mdraf]

In that case I believe you and I concede the point, even though, somehow, it doesn't match my case.
PS my argument was in regards to the faux CPI, not the Fed's inflation

Have you refinanced your mortgage in the last five years?  If so, didn't that reduce your housing expenses?  If you rent, then this reduced expense item would apply to you.

I would say shop around for car insurance from companies that don't advertise on TV.  They are all cheaper because they don't have to buy all of that TV time for their dumb commercials.

All I am really saying is that much of the "inflation is rampant" narrative just doesn't match up that well with reality.

One item that has definitely seen strong price inflation is the McDonald's menu.  A double quarter pounder with tax is now over $5.00 (that's not the combo, it's just the sandwich).

Yes I refinanced and it is much cheaper but my mortgage is small. Car insurance is steady but the value of the cars is down. By insurance I meant looking at the "replacement cost" to rebuild the house. It skyrocketed.  Restaurants way up. Grocery bills way up.  All services are up a lot: plumbers, electricians, lawyers, mechanics, veterinarians, cable TV, internet, land lines, banking fees, movies etc. Techie goods are down and are probably factored in the CPI but the fact that a Windows 8 machine today is much cheaper than a Windows XP one was doesn't really affect my life that much. That's why I don't like statistics. They are meaningless to the individual.

PS. And since I don't believe in most published data I'm totally invested in the PP because "it covers all bases" including the BS. Otherwise I would be using data to time the market

[Pointedstick]

Land lines? Banking fees? Paying those was soooo 90s, man! 

You can get a VoIP box that does everything a landline does for between zero and seven dollars a month. And you can get any bank fee canceled by calling and asking (I just did this last month). Cable TV may be more expensive, but it's more replaceable by Netflix and Hulu and the like than ever before, which will just destroy your monthly movie entertainment bill (mine is $8). Your car decreasing in value is just depreciation from you driving it and manufacturers releasing new models. I have noticed mechanics' services becoming more expensive, though. And restaurants being up also makes sense given that they're a luxury good and the well-off have been doing well.

But this kind of gets to a broader point: everyone's expenses are highly personal. It's possible for the average inflation figure to be 2% while your personal rate is 6%. But that's also possible in reverse, too.

[Gumby]

As the rich get richer, the cost of luxury goods has supposedly gone up considerably over the past few years...

This seems like a pretty strong built-in negative feedback loop, preventing runaway wealth by a few.  Poor people who build the rich people's yachts are able to charge more and more for their services.

Not that it matters, but do poor people build rich people's yachts? If so, I bet the boss pockets the profits and keeps paying the poor people next to nothing. Just guessing.

[Mdraf]

Try getting a bank to cancel a Letter Of Credit fee!   I also have Netflix, Hulu etc but when I want to watch a local channel there is not much choice.
You are making good suggestions for saving money but that is not the point. The point is I  do not believe inflation is 2%. How can we put a poll on this thread: how many people believe what the real inflation rate is. I am not familiar enough with the forum to do that (yet).

[slk23]

All of this macro economic analysis and debate is very interesting. But I think I've lost the thread; are you still discussing whether the Permanent Portfolio will continue to work?

Naturally I hope it does still work because I don't feel qualified or courageous enough to place bets on my opinion about which direction the economy is headed.  I'd much rather put my money into an agnostic portfolio such as the HB PP, let it roll with the punches, and make a modest but relatively consistent return.

It gives me confidence for the future when I look back other "interesting" times in the economic history of this country.  The 1970s, for example, were a pretty scary and confusing time for most people but we got through it and went on to better times.  I try to keep that in mind when things today seem headed for disaster.

[Pointedstick]

Try getting a bank to cancel a Letter Of Credit fee!   I also have Netflix, Hulu etc but when I want to watch a local channel there is not much choice.

Maybe so on that fee, but you can get local channels for free using a digital tuner!

You are making good suggestions for saving money but that is not the point. The point is I  do not believe inflation is 2%. How can we put a poll on this thread: how many people believe what the real inflation rate is. I am not familiar enough with the forum to do that (yet).

You'll have to post a new thread. Click the button marked "New Poll."