CPI, bald faced lies

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This will be my last post to this thread because it feels trollish.

RockOn said:
Do you eat, pay taxes, have health insurance, go out to eat once in awhile, buy gas, pay utilities, pay tuition, go on any vacations? Go on a European vacation and tell me about negative inflation. It's probably up 25% in one year. I can cut my expenses year after year for awhile too, it ticks me off to think I have to. :dead:
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To your question: yes, yes, yes, yes, yes, yes, preschool tuition yes, within the US yes.

Not interested in going to Europe now, thanks. I understand it has gotten more expensive to go there due to the exchange rate, which is not the same thing as inflation, which is what I thought the subject of the thread was.

Moemg said:
Are you sure you have the right numbers ? This equals $5,460 a month and I know you always post that you live on a lot less .
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Yes, I'm sure. What I have said repeatedly in the past is that I can live on very little after subtracting off for kids, mortgage interest, and income taxes. Roughly speaking, my expenses run about $30K every six months. Of that $30K, roughly $22K is spent on kids, mortgage interest, and taxes.

In the 1/1/08 to 3/14/08 timeframe, my son had an adenoidectomy which was an additional $1,000 in expenses for me.

Based on that data it should all match up pretty closely. Feel free to PM me if you want further clarification.

2Cor521
 
RockOn said:
I had to leave for awhile, I had to make some money to pay my kids tuition and my health insurance. Before I talk about the house price increase, let me add this. Our state tried to pass a bill to limit tuition increases to 9% a year at our public colleges. I'm not up to date on the outcome but I read it was likely to fail because the schools wouldn't accept it.

On the house price increase I did not mean to say house prices typically tripled every 5 years. Typically they barely keep up with inflation. What I say is they doubled or tripled in the last 5 years (it might have been 6 or so, I didn't look it up). I can get some Case-Shiller stats to back that up. That is a house price increase of 100% plus. Tripled might be had to find in the stats, doubling would not be. What was the reported CPI increase in the last 5 years? 16% from my source. That's about a 5 to 1 factor on that item. Can you buy that? I have the sources for Case-Shiller if you need them. Find for me anything in the world that went 5 to 1 the other way to make up for that. Want to try a few more? (Of course I realize house prices do not count.)

P.S. We could try housing (which we just did), utilities, food, healthcare/medical, transportation, taxes, and insurance. You know, just the things most of us actually have to buy. It might take me awhile to find the stats but I'm sure they are not going to average anywhere near 16% over 5 years. I left out computers, TV's, and clothing; the things often discussed as going down, because they are minor items on my list.
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The technical issue with house prices is that a house is both a consumer good and an investment. For virtually all other consumer goods, we buy them, use them up, discard them for zero value, then replace them. If we did that with houses, then the selling price would be the only thing we need for the CPI. Given the way we actually use/invest in houses, how would you include them in the CPI?

Regarding the Case-Schiller numbers, I went to the S&P site to find them.
Here's my link: http://www2.standardandpoors.com/spf/pdf/index/CS_HomePrice_History_022603.xls

Their "composite" numbers seem to have gone down 2% per month for the last two reported months. How would you think the gov't should reflect that in the CPI?

The actual increase over the past 5 years was 41% or 37%, depending on which composite you use.

They have prices peaking in mid-2006. Five year periods ending then were pushing 2x, but didn't actually get that high.
 
Independent said:
The technical issue with house prices is that a house is both a consumer good and an investment. For virtually all other consumer goods, we buy them, use them up, discard them for zero value, then replace them. If we did that with houses, then the selling price would be the only thing we need for the CPI. Given the way we actually use/invest in houses, how would you include them in the CPI?

Regarding the Case-Schiller numbers, I went to the S&P site to find them.
Here's my link: http://www2.standardandpoors.com/spf/pdf/index/CS_HomePrice_History_022603.xls

Their "composite" numbers seem to have gone down 2% per month for the last two reported months. How would you think the gov't should reflect that in the CPI?

The actual increase over the past 5 years was 41% or 37%, depending on which composite you use.

They have prices peaking in mid-2006. Five year periods ending then were pushing 2x, but didn't actually get that high.
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All logical points, as usual from you. I'm a little more emotional. :)

But, my kids are soon to go into the workforce and will be buying a house. Tell them there was no inflation in 2000's in the biggest purchase they will ever make. I'm not smart enough to know how it should be included, but it should be included. How did they do it before 1980? That is how I think it should be done.

I haven't calculated the incease over the last 5 years, it may only be 41% but it was 100% on average near the peak. I checked LA and Miami and found them to be up about 180% from 2000 to the top. That is close enough for me to say it was triple. Almost none of that increase went into the CPI during those years.

What is good is a CPI if doesn't include the largest expense of most Americans? I do not see why a house being an investment should make any difference. How do you know that houses will keep going up? They tend to just go up with inflation, that does not make them an investment. Maybe they will just start depreciating like everything else. They consider depreciation when they figure out my homeowners insurance rate. I've seen depreciation used on my appraisals also.

As far as houses dropping the last few years, I think it should be included, I'm surprised the fudgers haven't thought of that yet, or maybe they have. :)

If housing prices were in the CPI, the CPI would have been higher around 2003 and the FED would never have left rates at 1%. That allowed the housing bubble to get completely out of control. Bear Stearns would still be $60-$160 a share if house inflation had been included. I do not see how you can argue that. It's all a scam, I say.
 
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RockOn said:
All logical points, as usual from you. I'm a little more emotional. :)

But, my kids are soon to go into the workforce and will be buying a house. Tell them there was no inflation in 2000's in the biggest purchase they will ever make. I'm not smart enough to know how it should be included, but it should be included. How did they do it before 1980? That is how I think it should be done.

I haven't calculated the incease over the last 5 years, it may only be 41% but it was 100% on average near the peak. I checked LA and Miami and found them to be up about 180% from 2000 to the top. That is close enough for me to say it was triple. Almost none of that increase went into the CPI during those years.

What is good is a CPI if doesn't include the largest expense of most Americans? I do not see why a house being an investment should make any difference. How do you know that houses will keep going up? They tend to just go up with inflation, that does not make them an investment. Maybe they will just start depreciating like everything else. They consider depreciation when they figure out my homeowners insurance rate. I've seen depreciation used on my appraisals also.

As far as houses dropping the last few years, I think it should be included, I'm surprised the fudgers haven't thought of that yet, or maybe they have. :)

If housing prices were in the CPI, the CPI would have been higher around 2003 and the FED would never have left rates at 1%. That allowed the housing bubble to get completely out of control. Bear Stearns would still be $60-$160 a share if house inflation had been included. I do not see how you can argue that. It's all a scam, I say.
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I don't think I'll try to go through this point by point. However, the last item seems to be a big one to you.

You seem to believe that the Fed OMC simply looks at the CPI and uses some formula to determine interest rates. I think they use a lot more thought and judgement than that.

If the BLS had used a different method for getting housing costs into the CPI, I think the FOMC would have made exactly the same decisions about interest rates.

I think they look at a lot of statistics. Regarding inflation, I'm sure that they all know how the CPI, GDP deflator, and PPI are calculated and how they differ. They all know that the CPI uses rental equivalences. I'll bet that they were all looking at graphs that showed the trend differences between rental equivalences and housing prices. They were all looking at the various geographical markets - with widely differing increases in house prices. They had regular discussions about whether house prices were on a "bubble", and if they were, whether they should do anything about it.

They always need to balance the desire for low inflation with the desire for high employment. We had a "jobless recovery" coming out of the last recession. You are concerned about your kids buying homes, other parents are concerned about their kids finding their first jobs. The Fed tries to balance all that.

I'm not saying that I'm sure they made the right decisions. But the errors I see have nothing to do with some blind faith in a perfect CPI. The big error was an excessively optimistic view that the overall financial markets were pretty well insulated from the dishonest and stupid practices of some lenders. In fact, even if they had been more on top of the risk, they probably would have used regulation rather than interest rates to try to control the situation.
 
Without thinking this through too much (why start a new trend?) how about making the housing component a function of:

% of US residents renting x (average rents + average renters insurance)
+
% of US residents owning x (average mortgage payments + average property tax + average homeowners insurance)

Or are the increases in taxes even comprehended by the CPI?
 
Independent said:
You seem to believe that the Fed OMC simply looks at the CPI and uses some formula to determine interest rates. I think they use a lot more thought and judgement than that.
.
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I think the BLS fudging the reports to show low inflation gave "cover" for the FED to lower rates to 1% and leave them at 1% for way too long. During that whole period all I heard was "the FED doesn't have to worry about inflation, core inflation is barely positive" as house prices were spiking 20% a year (in some cases). Commodities were rising during that time, many breaking to new highs, it was ignored as we all supposedly switched from steak to chicken. War costs were also surging, spending overall was out of control. I think the FED obviously lacked in thought and judgement, the credit collapse proves that point.

I agree with Cute Fuzzy Bunny, that would be a fair way to do it. It would not be hard to figure out, if they wanted to be honest about it. It's a scam, I say.
 
lets see a dozen eggs were selling for .89 cents a year ago, go and find them today, more like 2.19 a dozen. Gasoline was selling for 2.20 a gallon 18 months ago today 3.30 a gallon, diesel fuel was 3 bucks a gallon today 4 bucks a gallon today. We got some inflation and if diesel keeps going up so will the cost of everything that comes to the superwalmart on trucks.
 
newguy888 said:
lets see a dozen eggs were selling for .89 cents a year ago, go and find them today, more like 2.19 a dozen. Gasoline was selling for 2.20 a gallon 18 months ago today 3.30 a gallon, diesel fuel was 3 bucks a gallon today 4 bucks a gallon today. We got some inflation and if diesel keeps going up so will the cost of everything that comes to the superwalmart on trucks.
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Ever met an apocalyptic thought you didn't like? :2funny:
 
ziggy29 said:
Ever met an apocalyptic thought you didn't like? :2funny:
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If you mean saying inflation is high is apocalyptic, discussion about it a hopeless cause. Can't see the forest for the trees.

It is beyond me how it is not obvious to everyone that the government is cheating Americans on inflation. I think it is obvious to the general public, in fact I hear more and more how it is becoming a joke when they report the numbers.

Since inflation was reported at almost zero again this month, the FED has been given cover to lower rates down to 2.25% again. Give me a break.

No more inflation comments from me. Onward. Three cheers!
 
Thank you REWahoo, I stand corrected!
My apologies for the faulty memory and information.
 
cute fuzzy bunny said:
Without thinking this through too much (why start a new trend?) how about making the housing component a function of:

% of US residents renting x (average rents + average renters insurance)
+
% of US residents owning x (average mortgage payments + average property tax + average homeowners insurance)

Or are the increases in taxes even comprehended by the CPI?
Click to expand...

This seems reasonable to me, but it won't give Rockon the result that he wants.

First, the BLS already breaks housing into "renter" and "owner" pieces and does the weighting as you suggest.

Now, what happens on the owners part? Of course, the great majority of Americans don't buy new houses in any given year. Most of us have payments locked in from prior years, so for all those houses the official price change will be zero. Since there are so many of them, this approach will lag actual market house prices by a lot.

This approach also includes interest. Which, again, seems reasonable to me. So in the years when mortgage interest rates were falling, and people were refinancing, actual monthly payments were going down on a lot of houses that weren't changing hands.

I haven't done the math, but it's possible that in the years when market prices were going up sharply and interest rates were dropping sharply, the amount of refinancing would have completely offset the upward market prices. (The math would require comparing the numbers of people refinancing, and the percentage drop in their monthly payments, to the number of people buying new houses, and how much their payments exceeded the prior owners.)

I have trouble believing that this approach would have given a significantly bigger bump in the bubble years than the method the BLS actually used. Rockon doesn't get what he wants.

(A couple details, you said "average payments". To be perfect, that should be "average payments on a fixed sample of houses that doesn't change month-to-month". Also, I haven't said anything about ARMS, but they just act like automatic refinancing.)
 
RockOn said:
I think the BLS fudging the reports to show low inflation gave "cover" for the FED to lower rates to 1% and leave them at 1% for way too long. During that whole period all I heard was "the FED doesn't have to worry about inflation, core inflation is barely positive" as house prices were spiking 20% a year (in some cases). Commodities were rising during that time, many breaking to new highs, it was ignored as we all supposedly switched from steak to chicken. War costs were also surging, spending overall was out of control. I think the FED obviously lacked in thought and judgement, the credit collapse proves that point.

I agree with Cute Fuzzy Bunny, that would be a fair way to do it. It would not be hard to figure out, if they wanted to be honest about it. It's a scam, I say.
Click to expand...

I think there are two different claims here. One is that the Fed made the wrong move, the second is they were able to do what they wanted to do because the BLS gave them "cover".

I disagree on the second issue - the amount of "cover" they got or needed from the BLS numbers. I don't see any way for either of us to convince the other. The best facts would come from following Fed govenors around day after day, listening in on all their many discussions. I can't do that, so I'm making an educated guess.
 
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