Expert says feds stealing half of seniors' paychecks

[Rocket_J_Squirrel]

Did anyone see this article on WorldNetDaily today?

WorldNetDaily: Expert says feds stealing half of seniors' paychecks

Any thoughts from the Forum members on the concept that the US Government and the Fed are cooking the inflation numbers?

I've looked at the website mentioned in the article 'Shadow Government Statistics' Shadow Government Statistics. and found the site very interesting. I don't have a membership so could not really investigate very thoroughly. This same website was quoted in the new issue of Forbes (12 NOV 07 edition) on page 36 in an article titled 'Inflation Fears' by Bernard Condon.

I am sure not a trained economist, but when I see what is happening to prices for almost everything except autos and electronics, you know that we do not have a 2.1% annual inflation rate!

It will be interesting to learn people's thoughts and views on REAL inflation and how people think actual inflation will impact their portfolios and investment decisions.

RJS

 

[Twinkle Toes]

Of course they are cooking the inflation numbers. For starters, food and fuel prices are omitted from the calculation. Now, let's see...if I stop buying food and fuel because they are experiencing a "temporary spike in prices", then I won't be impacted by them either. On the other hand, imagine what an "unadjusted" CPI would do to COLAs, etc. Think about the impact this would have on SS benefit payments and the SS fund solvency. Not a pretty pix either way.

 

[FIREd]

Sure I believe inflation is at 2.1%... If you don't eat, don't drive, don't heat or cool your house, don't get sick and don't need an education...

In terms of how inflation impacts my portfolio? well I think a great deal of the inflation we experience right now comes from a weak dollar. So I make sure to invest some money in assets that appreciate when the dollar plunges (things like stocks and bonds denominated in a foreign currency, gold, oil...). You can also invest your money in TIPS (though if you think the government is fudging inflation numbers, it may not help to invest in TIPS in my opinion).

The government has a vested interest in keeping "official" inflation numbers low. This is I believe the way the government has chosen to deal stealthly with the social security crisis without street protests and election day backlashes. Give the old people a raise each year to keep them happy, but make sure that the raise does not keep up with real inflation and voila, you all of the sudden decreased the future burden of social security on the budget. Plus a low "official" inflation number allows us to keep US interest rates low which makes it cheaper to borrow money from foreigners to finance our extravagances, and since "real" inflation is much higher, we can pay them back with phony money down the road. Ha! funny how the government supports a strong dollar policy but does absolutely nothing to prop it up...

 

[Maurice]

Hi Rocket -

There's no shortage of opinions on this matter here. For some interesting discussions try this link:

http://www.early-retirement.org/for...r-price-index-cpi-its-validity-not-30742.html

 

[Maurice]

Twinkletoes - Food and fuel are in fact included in CPI-U, which is the index the government uses for inflation-linked bonds. Social Security's COLA is based on CPI-W, which also includes food and fuel.

Its true that food and fuel are excluded from core CPI, but other than journalists I'm not sure who uses it.

 

[W2R]

For 2007, the social security cost of living increase was 3.3%, whereas that for federal employees was theoretically 2.2% (those living in places like S.F. and D.C. got more, while those of us living in the "rest of the U.S." area got a 1.8% cost of living increase).

So, my cost of living supposedly went up 1.8% and the cost of living of someone in my neighborhood on social security went up 3.3%. What would have been a realistic increase in cost of living?

I don't know!! Both seem low to me. But I agree with the rest of you. The system is set up to "cook the books" on inflation and cost of living. I suspect that we might see some very low social security cost of living increases once the first wave of baby boomers retire and qualify for social security benefits.

 

[maddythebeagle]

Yeah...brought up several times...but I would have to disagree on calling it "stealing"....considering that the Boomers didnt really fully contribute what they will be taking due to population shift...and in the long run, folks that only have SS to live on will simply have to cope...

 

[bots2019]

Yeah...brought up several times...but I would have to disagree on calling it "stealing"....considering that the Boomers didnt really fully contribute what they will be taking due to population shift...and in the long run, folks that only have SS to live on will simply have to cope...

There's also the compounding effect here. If true inflation is understated for the next 35+ years, just think of what the true value of SS benefits will actually be at that point!

 

[ziggy29]

There's also the compounding effect here. If true inflation is understated for the next 35+ years, just think of what the true value of SS benefits will actually be at that point!

I think that's part of the "stealing half" thesis. Even if they only understate inflation by 1-2% per year, over the course of a decade or two, you have lost anywhere from a quarter to a half of your real purchasing power.

 

[cute fuzzy bunny]

I dont think its stealing. The BLS openly states what the calculation is and what its good for. Its probably a decent measure for a regular urban worker who rents and has a job that pays their health care. Accuracy for other groups of people or individuals is simply coincidental.

The CPI-E (Elderly) probably matches up more closely with early retirees, although IIRC there was some stuff about throttling down expenses with age included in that calc. At least it presumes home ownership, more travel, and paying extra for health care.

The compounding effect hits all retirees. Its just not that pronounced in a traditional retiree who only experiences it for ~20 years on average. Its a bit more troubling when its bearing on your returns for 40-50 years.

 

[Texas Proud]

"He estimates the true inflation rate in the U.S. would be close to 11 or 12 percent if the CPI were not manipulated. "


Now, this one statement seems to make me think less of the article... there is no way that total inflation is in the 11 to 12 percent range...

Take a look at some of what you buy... computers and other electronics go down all the time.. Heck, I bought a nice Chevy Monte Carlo back in 1995 for $20K.. a new Impala would cost about $27K for about a 3% increase (and the car is better to boot)... housing costs are up here about 3% also.. I am not sure of gas, but doing a quick calculation it looks like it is going up about 3% also from back then..

Now, health care is another matter.. and I have heard education is also up big time. I just don't see an 11 to 12 percent inflation rate.

 

[ziggy29]

Now, health care is another matter.. and I have heard education is also up big time. I just don't see an 11 to 12 percent inflation rate.

If someone spends almost all of their money on health care, energy and college tuition, I can believe double-digit inflation.

Otherwise, I think that's ludicrous. I've almost never received anywhere near 11-12% raises, and my standard of living hasn't severely eroded. Having said that, I think the current 2-3% stated inflation is bunk, but probably understated overall by only 1-2%, not 8-10%.

 

[cute fuzzy bunny]

You'd have to be a first time home buyer who is paying for their own healthcare and sending 5 kids to college to get double digit inflation.

 

[twaddle]

"He estimates the true inflation rate in the U.S. would be close to 11 or 12 percent if the CPI were not manipulated. "


Now, this one statement seems to make me think less of the article... there is no way that total inflation is in the 11 to 12 percent range...

Yeah, I think most people feel inflation is understated because they don't have a good feel for what the year-over-year numbers mean.

Think way back to November 1997. 10 years ago. Doesn't seem that long ago to me. Now, how much have prices increased since then?

Have they trippled? Have they doubled? Or have they gone up about 35%?

If inflation was 11%, that means prices trippled in the last decade.

If inflation was 7%, that means prices doubled.

If inflation was 3%, that means prices went up about 35% over the last 10 years.

The CPI-U seems about right to me, but what do I know? It's more fun to believe in government conspiracies.

 

[ziggy29]

Think way back to November 1997. 10 years ago. Doesn't seem that long ago to me. Now, how much have prices increased since then?

Have they trippled? Have they doubled? Or have they gone up about 35%?

If inflation was 11%, that means prices trippled in the last decade.

If inflation was 7%, that means prices doubled.

If inflation was 3%, that means prices went up about 35% over the last 10 years.

The CPI-U seems about right to me, but what do I know? It's more fun to believe in government conspiracies.

I still think the numbers are cooked a little bit, but I will certainly grant you that people are much more aware of the current inflation in gas prices, milk prices, health care and college costs than they are about that big-screen flat-panel TV that costs one-quarter of what it did five years ago.

 

[Texas Proud]

The numbers are a bit cooked as was spelled out in the article... if you bought steak it should be based on steak and not hamburger....

But, for other items it seems to be close.. as ziggy said, it is probably low by 1% or 2%, but not 3%....

And CFB, if you were a first time homebuyer would you actually have double digit? I mean, you were not consuming the house before

 

[twaddle]

if you bought steak it should be based on steak and not hamburger....

The substitution point gets raised often. I haven't been able to find a list of substitutions the BLS has made, but my understanding is that they don't substitute hamburger for steak, or catfood for meatloaf.

I think they do brand substitution every few years. For example, they may purchase a generic drug instead of a name-brand drug. You know, just like real people do.

 

[ziggy29]

The substitution point gets raised often. I haven't been able to find a list of substitutions the BLS has made, but my understanding is that they don't substitute hamburger for steak, or catfood for meatloaf.

I think they do brand substitution every few years. For example, they may purchase a generic drug instead of a name-brand drug. You know, just like real people do.

Whatever substitution they are doing, as long as it substitutes a less expensive item than a more expensive item, is not giving an accurate read on *true* apples-to-apples inflation. If X was part of the CPI in one year, X -- not a cheaper substitute for X or a generic version of X -- should be in it the next year. Only the government could substitute a Yugo for a Chevy or a Chevy for a Cadillac and claim that the price of a car dropped even if the prices of Yugos, Chevys and Caddys all rose 10%. If anyone else tried to do that, this same government would probably pursue fraud charges on them.

People "substitute" not to reduce inflation itself, but to reduce its impact of inflation on their solvency and cash flow. Using substitution to justify lower inflation figures is a scam, IMO.

 

[twaddle]

People "substitute" not to reduce inflation itself, but to reduce its impact of inflation on their solvency and cash flow. Using substitution to justify lower inflation figures is a scam, IMO.

Well, they used to have no substitutions. They started the "scam" when independent economists reviewed their methodology and figured that they were overstating inflation by not doing the kind of substitutions that consumers were doing.

I buy generic drugs when available, for example. It would be irrational for me to continue purchasing an expensive brand when an equivalent product exists that costs less.

 

[Rustic23]

Twaddle,
If the government is attempting to find out how much more or less a family spends to live, vs how much things in the economy have gone up or down, then generics should replace brand names. However, if people are using generics because they can no longer afford brand names, because the brand names have increased in price, or other items in their lifestyle have increased, then substitution should not be made. I could see the cost of a horse for a car or a computer for an abacus, but chicken for beef is wrong.

 

[twaddle]

Twaddle,
If the government is attempting to find out how much more or less a family spends to live, vs how much things in the economy have gone up or down, then generics should replace brand names. However, if people are using generics because they can no longer afford brand names, because the brand names have increased in price, or other items in their lifestyle have increased, then substitution should not be made. I could see the cost of a horse for a car or a computer for an abacus, but chicken for beef is wrong.

I haven't seen any evidence that the BLS is substituting chicken for beef. I admit I didn't look very far, but all I found was this on their site:

Drugs losing patent protection:When a brand-name drug in the sample loses its patent protection, generic versions of the drug receive a one-time chance to replace the original, brand-name drug even if the sample pharmacy continues to sell the brand name drug. Six months after a drug in the sample loses patent protection, CPI field staff selects among all drugs (including the original) that the Food and Drug Administration deems to be therapeutically-equivalent. Delaying the reselection for six months allows emerging generic drugs an opportunity to gain market share. The chance of drug selection is proportional to the number of prescriptions sold for each version of the drug over the previous 3 months. If a generic is selected, the CPI treats any price difference between the original drug and its selected substitute as a price change, and reflects this change in the index in the month when the procedure was performed.

That seems perfectly reasonable to me.

As far as chicken vs steak, even though I don't see them doing that, I would think it would be a reasonable thing for them to do if cows went extinct, for example.

 

[Rustic23]

My doctor, for one, does not like generics. We did not get into a long discussion as to why, but he does not. Often he will write 'no substitution' on the pad. If the CPI is intended to keep the SS beneficiary at a standard of living, and it forces people to change their preferences, then while that change may seem reasonable to you and me, the CPI, IMHO, is not doing what it was intended to do.

 

[twaddle]

Personally, I think the BLS has a tough job creating a fair CPI, and I think they do a much better job than I could. Every time I look at their methodology, I'm more and more impressed.

Take a look at the paragraph I quoted, for example: The chance of drug selection is proportional to the number of prescriptions sold for each version of the drug over the previous 3 months.

Maybe I'm just easily impressed, but that seems about as close to a scientific approach as one could get. They don't shop for the best price. They don't go to Wal-Mart. They choose their samples based on a statistical analysis of sales trends, and they still may end up picking the more expensive brand over an equivalent generic.

I guess I wouldn't call that "stealing" from poor old pensioners.

 

[ziggy29]

My doctor, for one, does not like generics. We did not get into a long discussion as to why, but he does not.

I believe some doctors simply don't trust the inactive ingredients in some generics. The generics will have the same active ingredient and in the same concentration as the name brand medication, but it may have considerably different inert ingredients (and perhaps, less well-known side-effects).

That would be the only reason I could think of, other than being on the take from Big Pharma...

 

[FIREd]

I don't think either that inflation is running at 10-12%, there is no way. But my gut feeling and my own personal finances say that it is probably running at 4-5% right now. So say it runs at 4.2%, double what the government number is. Real inflation is only about 2% higher that official inflation. That may not sound like much, but in fact it is huge. It means that the government is underreporting inflation by 50%. If the government continues this practice and you compound that over the years then my social security check will be worth about half what the SSA is quoting me right now by the time I qualify for SS benefits in 35 years.