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Old 10-01-2012, 10:02 AM   #61
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Good old shadow stats. So, if the "real" annual CPI is 2%-3% higher than the published cpi and has been that way for the past decade, the "real" GDP is about 25% bigger than the one we all are living. Don't ya' think someone would have noticed by now?
Pity party pooper...
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Old 10-01-2012, 10:41 AM   #62
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Originally Posted by MichaelB View Post
Good old shadow stats. So, if the "real" annual CPI is 2%-3% higher than the published cpi and has been that way for the past decade, the "real" GDP is about 25% bigger than the one we all are living. Don't ya' think someone would have noticed by now?
Here is an excellent essay by Michael Rozeff which shows exactly why using the CPI in any form is problematic:

Inflation Is Worse Than You Thought

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Most analysts use the CPI or some variant for measuring price inflation. I prefer to use the growth rate in the monetary base, also known as M0. By this measure, price inflation is much worse than you thought if you use some version of the CPI.

I use the growth rate of the monetary base for three main reasons. First, it is a very accurate measure of the inflation in bank notes of the Federal Reserve (FED). Second, the FED's bank note inflation is a major cause of changes in prices in the economy. Third, the CPI has major flaws and difficulties.
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What has been real growth in Gross Domestic Product (GDP) if we use the monetary base as a deflator?

In 1947, the GDP began the year at $237.2 billion. In 2009's first quarter, it is $14,178 billion. This is a 6.6 percent growth rate unadjusted for inflation in any way.

Over the same period, the monetary base rose by 5.38 percent a year if we stop last September(2009) and 6.31 percent if we include the recent period of high growth. Using the September figure, the GDP has grown 1.2 percent a year after taking into account the monetary inflation represented by the growth in the FED's bank notes outstanding. If the CPI is used, the picture is much more rosy. The CPI went up 3.66 percent a year, so that real GDP growth comes out 2.94 percent a year.

Are Americans better off than they were in 1947 by an amount that is measured by 2.94 percent a year improvement? No one knows how to measure such a thing. I sure don't. However, it means that Americans are 6 times better off, because $1 becomes $6 if it compounds for 62 years at a rate of 2.94 percent a year. If real income actually grew at the 1.2 percent figure that the monetary base method suggests, then the improvement is by a factor of 2.1. Americans are about twice as well off by this measure. My guess is that inflation has been worse than the CPI index might lead one to believe.
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Old 10-01-2012, 10:51 AM   #63
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Originally Posted by StuartR View Post
Here is an excellent essay by Michael Rozeff which shows exactly why using the CPI in any form is problematic:

Inflation Is Worse Than You Thought
To summarize: 1) Measuring CPI is hard, so I use my own measure 2) We've had lots of inflation over the last 50 years. I don't see how this relates to CPI manipulation or conspiracy, or hyperinflation, or anything else.
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Old 10-01-2012, 11:41 AM   #64
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To summarize: 1) Measuring CPI is hard, so I use my own measure 2) We've had lots of inflation over the last 50 years. I don't see how this relates to CPI manipulation or conspiracy, or hyperinflation, or anything else.
You're asking why we should care about how the inflation and GDP numbers are calculated.

Here is an excellent piece by Chris Martenson:

Fuzzy Numbers

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Our economic recession, and possibly depression, can be partially explained by the extent to which we have chosen to provide ourselves with misleading economic data. Certainly if you share my concerns over stocks, bonds, and 401K holdings, or are a serious investor of any sort, you owe it to yourself to listen to this explanation of how wrong our measures of inflation and GDP really are.
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At every turn, a new way of measuring and reporting was derived that invariably served to make things seem a bit rosier than they actually were. Economic activity was higher, inflation was lower (a lot lower), and jobs were more plentiful. Unfortunately, the cumulative impact of all this data manipulation is that our measurements no longer match reality. We are, in effect, telling ourselves lies, and these fibs serve to distort our decisions and jeopardize our economic future.
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The social cost to this self-deception is enormous. For starters, if inflation were calculated like it used to be, Social Security payments, whose increases are based on the CPI, would be 70% higher today than they actually are. Because Medicare increases are also tied to the CPI, hospitals are increasingly unable to balance their budgets, forcing many communities to lose services. These are real impacts.

But besides paying out less in entitlement checks, by understating inflation, politicians gain in another very important way.

Gross Domestic Product, or GDP, is how we tell ourselves that our economy is either doing well or doing poorly. In theory, the GDP is the sum total of all value-added transactions within our country in any given year.
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Now lets tie in inflation to the GDP story. The GDP you read about is always inflation-adjusted and reported after inflation is subtracted out. This is called the real GDP, while the pre-inflation adjusted number is called nominal GDP. This is an important thing to do, because GDP is supposed to measure real output, not the impact of inflation.

For example, if our entire economy consisted of producing lava lamps, and we produced one of them in one year and one of them the next year, wed want to record our GDP growth rate as zero because our output is exactly the same.

So if we sold a lava lamp for $100 one year but $110 the next, wed accidentally record 10% GDP growth if we didnt back out the price increase. So in this example, the real lava lamp economy has a value of $100, while the nominal lava lamp economy is $110. But all we care about is the real economy, because were trying to measure what we actually produced.

Ah! Now we can begin to understand the second powerful reason that DC loves a low inflation reading. Its because GDP is expressed in real terms. In the 3rd quarter of 2007, it was reported that we experienced a very surprising and strong 4.9% rate of GDP growth. At the time, there were many proud officials declaring that certain tax cuts were responsible for this excellent news, and so forth. Less well reported was the fact that nominal GDP was 5.9%, from which was deducted the jaw-droppingly low inflation reading of 1%, giving us the final result of 4.9%.

In order to believe the 4.9% figure, you have to first believe that our nation was experiencing a 1% rate of inflation during the same period that oil was approaching $100/barrel and inflation was obviously and irrefutably exploding all over the globe.
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The same sort of statistical wizardry that weve explored here is performed on income, unemployment figures, house prices, budget deficits, and virtually every other government supplied economic statistic you can think of. Each is laced with a long series of lopsided imperfections that inevitably paint a rosier picture than is warranted.
In short, how can one make proper decisions on investing, saving or anything else for that matter, if your assumptions are based on false data supplied by the government while your real world purchasing power is getting blown away by the dollar printing machine and the spendaholics in DC?
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Old 10-01-2012, 12:37 PM   #65
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You're asking why we should care about how the inflation and GDP numbers are calculated.

Here is an excellent piece by Chris Martenson:
No, I'm not asking that - not even wondering. Most people on this forum (and everywhere else) already care and many of us already know how inflation is calculated. The people you are linking are the ones that are confused.

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In short, how can one make proper decisions on investing, saving or anything else for that matter, if your assumptions are based on false data supplied by the government while your real world purchasing power is getting blown away by the dollar printing machine and the spendaholics in DC?
There is no doubt CPI data is important to investors, just like it is important to everyone else. "False data supplied by government"? Right. So, I guess our "real economy" is 25% (or so) smaller than we think it is, the difference being all that inflation we aren't counting. So, if business profit margins are normally single or low double digit, and they have been raising prices for a decade without that being counted, why aren't their profit margins at 30%+ now? Labor and input costs have not risen by nearly that much.
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Old 10-01-2012, 01:15 PM   #66
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No, I'm not asking that - not even wondering. Most people on this forum (and everywhere else) already care and many of us already know how inflation is calculated. The people you are linking are the ones that are confused.


There is no doubt CPI data is important to investors, just like it is important to everyone else. "False data supplied by government"? Right. So, I guess our "real economy" is 25% (or so) smaller than we think it is, the difference being all that inflation we aren't counting. So, if business profit margins are normally single or low double digit, and they have been raising prices for a decade without that being counted, why aren't their profit margins at 30%+ now? Labor and input costs have not risen by nearly that much.
Please point out the points that are factually incorrect in either of the linked pieces.

What do you base your assumption on that input prices to business have not increased on par with output prices? When output and input prices rise together, profit and production are maintained?
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Old 10-01-2012, 01:34 PM   #67
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I blame the Trilateral Commission. And the Bilderbergs... But we all know it's really the Bavarian Illuminati setting the overall policy as they plan or the eventual return of the Reptilians from Hollow Earth.

There must be a conspiracy involved, just to keep the Bureau of Labor Statistics, American Statistical Association, and the Billion Prices Project at MIT all correlated. If any of these were using the real data that ShadowStats makes available, we would all see The Truth behind the lies behind the truth!


http://bpp.mit.edu/usa/
http://www.bls.gov/cpi/tables.htm
http://www.bls.gov/cpi/data.htm

Oddly, I can't find an online source of the data used by ShadowStats right now. Damned Illuminati!
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Old 10-01-2012, 01:52 PM   #68
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But we all know it's really the Bavarian Illuminati...
Don't they run the Austrian School of Economics? Or am I confused again...
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Old 10-01-2012, 02:23 PM   #69
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I've been living on a fixed budget with yearly CPI increases for 5 years now. We skipped a big 5% one around 2008 or so because that clearly wasn't going to be required. Seems to match our spending pretty easily, with no changes on our part.

If you don't like the number, don't use it. It is what it is, and there is some transparency in its calculation.
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Old 10-01-2012, 03:12 PM   #70
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I have been retired 6 years, living on cat food. I clip coupons when the price goes up.
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Old 10-01-2012, 04:25 PM   #71
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We've had our fun but this discussion is off topic and unfair to Bluemoon. Anyone interested in analyzing the finer points of inflation conspiracy is welcome to start a new thread on that topic. Let's not continue it here.
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