TIPS and the CPI

[rhymenocerous]

http://www.cnn.com/2012/12/03/politics/ ... ?hpt=hp_t1

The GOP plan promises $2.2 trillion in deficit savings over the next decade, including $800 billion from tax reform, $600 billion from Medicare reforms and other health savings and $600 billion in other spending cuts, House Republican leadership aides said. It also pledges $200 billion in savings by revising the consumer price index, a measure of inflation.

I know that Craig and MediumTex have often warned about the goverment monkeying around with how the CPI is calculated, but I didn't expect to see something so quickly!  This makes me glad that I don't have TIPS in my portfolio that could be adversely affected by these changes.

[Pointedstick]

As Craig and MT are fond of saying, you wouldn't buy fire insurance from an arsonist, so don't buy inflation insurance from an inflationist! The government never has an incentive to provide a realistic measure of inflation and many to fudge the numbers down.

[Peak2Trough]

I remember back in 2000 when I had a few dollars to invest, some financial advisors were suggesting TIPs to me.  I knew virtually nothing about investing at the time, and once they explained how they worked, I immediately declined for the reason MT and craig frequently give.

I just cannot imagine how anyone thinks it's a good idea to link your investment returns to a number which the government has a financial incentive to artificially lower.  It boggles the mind!