Deflating Inflation

Thu, Oct 13, 2011 - 10:08am

Mrs F returned from a trip to Target yesterday, full of vim and vigor regarding the prices of everything she had to purchase. I explained to her that the U.S. government deliberately understates the true rate of inflation and then proceeded to explain why they do it. It then dawned on me that many of you could use a refresher, as well.

It's quite simple, actually, but first you need some background. You've likely heard me mention the economist, John Williams, before. If not me, then you've certainly seen Santa make reference to him. John's site is:

On his site and through his subscription service, John goes through the painstaking process of re-calculating "official" U.S. government statistics based upon the methodology used when the statistics were originally created. John was interviewed by Glenn Beck back on Tuesday and here is s link. The interview is brief but, if you're unfamiliar with John's work, this will help get you up to speed. (And please don't fill this thread with comments about Glenn Beck. I like Glenn but it's the message, not the messenger. Got it?)

Now that you know how government statistics have been reformulated and manipulated over time, you need to know why. The answer is quite simple, really. MOPE. Perceptions must be "managed" in order to keep the entire Ponzi afloat.

Think of how many times you hear total U.S. debt expressed as a percentage of GDP. How many times have you heard pinheads like LIESman tell you that "overall U.S. debt, when expressed as a percantage of GDP, is not that big of a deal. In fact, it's quite low. No problem here!"

Think of how many times you've seen our esteemed chief executive or one of his minions come out to trumpet the "outstanding jobs growth and unemployment rate". "Yes, 9% is a high number but, historically, it's not too high to be overcome".

Most importantly, think of how many times you've heard it declared that "inflation remains relatively tame". "The CPI was this but ex food and energy it was that" and all is well. But yet you head off to the market like Mrs F and you see that milk, which a few months ago was $3.19/gallon going for $3.69/gallon, and you wonder how this can be true.

Of course the answer is, it's not true! It's all BS! Think about the inflation numbers specifically. If the true rate of inflation was allowed to be published, would the 10-year note be trading at a yield of 2%? Would the 30-year bond be trading at 3%? Of course not! If inflation is really 10%, the real (inflation-adjusted) annual return on the 10-year note is -8%. Over the life of the note, the holder sees their purchasing power guaranteed to diminish by about 2/3. What kind of mindless fool would buy this? NO ONE! If the actual rate of inflation was accurately disseminated, the yield on the 10-year note would have to soar to 12%, maybe even 15% just to attract buyers. Double-digit interest rates would make servicing the current debt virtually impossible. The overall debt and deficit would immediately soar to truly unsustainable heights and the Great Government/Financial/Military Ponzi would unravel almost overnight.

So, the statistics must be distorted and spun in the government's favor. There is no other option.

However for you, my dear reader, there are options. Understand that what you've just read is true and plan accordingly. This system of lies and deceit will, eventually, fail. In the meantime, you will have accumulated extra hard assets. Everything from land to rice to gold and silver. You should accumulate these things now before they become too expensive to be purchased in bulk.

Shakespeare once wrote: "Truth is truth. To the end of reckoning." And so it shall always be. Prepare accordingly. TF

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Exergy · Oct 13, 2011 - 12:47pm

Inflation VS Deflation and the endgame

Thought I would toss in a simple way to understand inflation that will keep you from being "MOPED".

Remember this and you will never get bamboozled by ivory tower economists or silver tongued politicians or forked tongued banksters.


Simply put:

Is money buying more stuff generally? ...if yes you have DEFLATION

Is money buying less stuff generally ...if yes you have INFLATION

Where we get led out into the rhubarb is when you start looking at the stuff you are buying in isolation as in the case of housing and flat screen TV's are getting more for your dollar and their prices have deflated but you have to understand why and in most cases it's the law's of supply and demand. Too many houses owned by too many people who can't afford them is a supply glut. Better and more efficient production of flat screen TV's plus a falling demand see's a falling price.

Look to commodities like food and fuel that see a fairly inelastic supply and demand and if you get less for you paycheck....inflation...if you get more...deflation.

Commodities are being manipulated as we all know so it gets harder and harder to see truth in the numbers but John Williams and our Turd never let their eye get taken off the ball.

The entire financial system is being bent and twisted in a manner that can't last forever....this site is about being ready for the day it crashes. Interest rates are frozen at zero, money is printed at will but frozen into bank balance sheets to plug losses and the markets are juiced to make people feel ok about their pensions! The velocity of money is not increasing and we STILL see inflation...OMG!!!

The politicians must lie to keep their jobs and perpetuate the myth that they are doing something and that this scenario is sustainable. (entire markets being moved by government's (plunge protection teams, and gold suppression and surreptitious money printing and bond purchases!!!? ...or a story of Germany and France planning to get together to work on a plan that everyone knows must include finding a way to get their governments to agree on printing unlimited amounts of money and keeping the sheeple in the dark?!! (the FED>>>a private corporation loans 16 trillion> (more than the US GDP or DEBT )without oversight!!!!!! and it takes a forced partial audit to unearth that much)

The bankster's must milk the system for profits even it if kills their institutions (theft and fraud are the new normal and it's accepted out of fear that one of them might implode and crash the rest! It's now ok to steal from the people on all foreign currency transactions because you clear the US government paper)

The reality is that too much is owed by too many to to ever be paid off and what we are witnessing is the death of the fractional banking system. The players are simply not able to stop being what they are and we must watch this train wreck in slow motion and there is NO WAY TO STOP IT.

Those at the top know it and those that are here know it.

The ONLY thing that matters is owning things that can't get taken away when our money dies.

On that day, only things that are real will have value...that and of course food, shelter and security.

The EndGame:

What I watch in fear and awe is how far can "they"can increase their leverage before it goes boom. The ECB was 27:1. The Fed was 40:1...and all that is based on disclosed numbers AND changing the accounting rules to allow "mark to model". 

I wonder if we should start a contest to guess the leverage they manage to get it all up to on the day it finally crashes? 

And when it does all come down we know that countries will revert to "tribes" and no-one will trust anyone's money until something that can't be manipulated is used as a reference point. I suspect this human characteristic will form the basis for a global currency...I just wonder who will decide the reference point and whether countries will be held to external audit on what they truly hold?

He who has the gold will make the rules again.

Mines are the future banks.

Is this why a Rothschild opened a bullion exchange in Asia this year and is offering contracts with 100% backing? thinks I know who bought a lot of the central banks gold then left the LBMA years before it went boom ...sorry my conspiracy theory for the day :) )

Stormdancer · Oct 13, 2011 - 12:47pm

Split hares

Unfortunately some of us may be eager to try some unconventional foods in days to come. You can do much worse than spitted split hare :)

diegeiro · Oct 13, 2011 - 12:47pm

Funny Numbers

World Collapse Explained in 3 Minutes
CreditCrumbs · Oct 13, 2011 - 12:48pm

A Few Perspectives on Inflation

My thought on inflation. Keep in mind I'm not an economist. If you find flaws, I would love for you to point them out. 

1. Money/Credit expansion. Back at Mish's blog, he defines inflation as money/credit expansion (not as price levels) to argue that we are now in deflation. The problem is while it sounds plausible, he never proved it. Only household is reducing their debt level. US government is increasing their debt level (10-15% of GDP). Household and gov of other countries are increasing their debt level in USD. They could go to a US bank and get a loan in USD. Finally, China is printing money (loan) too to keep USD-RMB peg. Singapore, UK, have admitted to printing money. So in the aggregate, I believe we are in a situation where inflation is lower than when we had QE1/QE2, but it is not negative. 

2. M2. As pointed out by several readers already, M2 is not declining. It is expanding fast. What is M2? M2 includes M1 (currency in circulation/bank vaults or in checking accounts) + money in savings accounts + money in CDs. Expanding M2 means that someone is getting money and is depositing it in banks. Where does the money come from? Either directly (leakage of monetary base or new loan) or indirectly (increase in money velocity). That's it. I don't know any other way M2 can increase. What is M2 telling us? Increasing. Directly or indirectly, inflation is picking up. 

3. Monetary Base. What is monetary base? Monetary base is currency in circulation/bank vaults + bank reserves. This is high-powered money. Money that can be lent out to create loans. So, you can think of expansion of monetary base as the earliest sign for inflation, and if it shows up in bank deposits (such as M1 and M2), you know that the monetary base has leaked out to bank clients. In theory, there is a lag between expansion of monetary base leading to an increase in bank deposits leading to increase in price levels. What is monetary base telling us? Inflation will come and accelerate. Monetary base has increased by 3.5x since the low of PMs in 2008. 

4. Liquidity preference. What is liquidity preference? Demand for money. How willing is people holding cash instead of something else. The lower treasury yield is, the more people are indifferent about holding cash (as the alternative, loaning it to government, looks as bad). Hussman has done excellent analysis on this. He plots 3-month treas yield vs. monetary base/GDP. The relationship between the two is very clear as shown in the figure below. Where are we in the graph? Off the chart, since our monetary base is about 2.9T, GDP 14T, so it is roughly 20 cents per dollar of GDP. Which means that 3-month yield must be absolutely 0% for it not to be inflationary. As you can see in the graph, if 3-month yield increases to just 1%, nominal GDP will double (absence of real GDP growth, it means price level doubling). If it increases to 5%, nominal GDP will triple or quadruple. Hussman argued that high and accelerating inflation is baked in the cake unless Bernokio shrinks the monetary base by a big amount. Not going to happen, IMHO, the opposite (monetary base keeps increasing to fund gov deficit) is going to happen. 

5. Level of prices adjusted by quality and quantity. Those who go to groceries will notice price has been increasing, while package size or quantity, and quality, have been decreasing. Why are tight fitting shirts and pants fashionable today? To maintain profit margin by shrinking raw material use. My daughter also noticed her favorite gold fish snacks have become so puffed up with air that there is little snack remaining. Anyway, if you measure price/(quality * quantity), our inflation rate is between 8-16% roughly. 

6. ​Financial repression vs. hyperinflation​. Bernank's preferred outcome is financial repression, where rates can be kept low while high inflation is happening in the background. He wants financial repression to last long enough until his bank buddies have been recapitalized. The only difference between financial repression and hyperinflation is the % of population who realize the existence of high inflation and hence want to get out of USD. The key tool to ensure financial repression "success" is perception management (euphemism for propaganda and lies), to convince the population that inflation is contained, low, decelerating, or whatever. Gold/silver price suppression is a key component of the propaganda. Financial repression cannot work forever, eventually you cannot fool all the people all the time. However, Bernank hopes it will last long enough until his bank buddies have recouped all their speculation losses. At that time, he will no longer wish to suppress gold/silver prices. This is the TSHTF moment we are all preparing for. 

Shill · Oct 13, 2011 - 12:55pm

I was always under the

I was always under the assumption you cannot have REAL inflation until wages rise as well. Remember back for a moment, when GWB was in office and the first stimulus noise started TARP and so on. Checks were being sent out to families across the country. And with that prices started to rise, gas jumped up over $4, food costs rose over night and so on. Cost push inflation yes, but incomes rose due to the rebate checks. INCOMES INCREASED artificially.

Income also increased with Obama's work credit, and again prices increased for 2 years.

Now prices are continue to rise, yet our incomes are going down. Once a new president is put in place another stimulus will happen ( maybe earlier ) and the cycle will continue until it comes to a final halt.

recaptureamerica · Oct 13, 2011 - 1:05pm

It's the yogi bera economy.

There's no inflation, just everything costs more.. Also I saw no mention of less is more! Less of the item is more not only because they raise the price but give a double uh, whammy with less of the item. 1/2gallons used to be 64 oz. Now 59 oz. HD Pints(16 oz) of ice cream are now 14 oz. Oh well keep stacking....

Gramp · Oct 13, 2011 - 1:05pm

Great Discussion Guys!

Captain Turd points the Bow in a wide loop to illustrate a point. Prices of many items have been rising recently. Like you guys mentioned Butter, ect. The item I noticed was Candy Bars! haha! :) uh oh , i am getting old! So 15 years back, regular candy bar was @ best price .48c US. Today, well north of 1.00$ Like 1.29$ Uh, they're hitting me where it hurts!

 No, seriously.

If you are under the spell of "MOPE" it would make sense that the modern system is very efficient. Of course you say... but why then are we seeing rising prices on food / fuel?

 All parties involved with goods and services are trying to reduce costs, to maintain a profit. " Oh no we can't pay you any more because our costs are so high" type thinking.

Prices rising on consumer goods, would this happen before things like PMs show an increase? or is the jump in cost of consumer goods just now catching up to the recent increase in the PMs price?

I am surprised by the increased cost of some things in just my short time.

beach_bum · Oct 13, 2011 - 1:05pm

The Real Definition of Inflation

Inflation is the increase of the money supply. Rising prices are the result of said increases. The banksters have done such a fine job of foisting the definition off onto the result of their misdeeds that it is now the mainstream definition. Ron Paul says it best:

Statement before the US House of Representatives Financial Services Committee, Full Committee Hearing on "Implications of a Weaker Dollar for Oil Prices and the U.S. Economy," July 24, 2008

Mr. Chairman,

The root of our current economic malaise, the weak dollar, the high price of oil, and the collapse of the housing market, comes about because almost no one understands what inflation is. Inflation is an increase in the money supply, which occurs by various methods, the printing of currency, low reserve requirements, Federal Reserve open market operations, etc.

In Germany in the 1920s, South America in the 1980s, and Zimbabwe today, everyone recognizes that inflation was caused by the government running the printing presses non-stop, with the resulting exponential rise in prices being the necessary result of monetary growth. Yet somehow, both the empirical and theoretical reality of inflation as a rise in money supply is ignored in this country. Inflation is conflated with price inflation, the increase in the overall price level, and is viewed as something both endogenous to the market economy while at the same time influenced by exogenous price shocks.

full article:

I Run Bartertown · Oct 13, 2011 - 1:07pm

Uh oh

While finding this:

I stumbled across George Soros speaking to OWS:

backseatdriver · Oct 13, 2011 - 1:07pm

beach bum

PERFECT!! That is boiled down to its essence right there. Gotta love Llewellyn.


HeNateMe · Oct 13, 2011 - 1:18pm

Inflation Tracking

I have been tracking various prices of various commodities, currencies, etc. since early April. One interesting note is that the regular price of a K-Mart 3 pack of men's crew neck T-shirts has gone from 7.99 (4/22/11) to 11.99 (today). That's a 50% increase in a little over 6 months!

It's hilarious because they say it's on sale for $9.99 though, regular price $11.99! It was on sale back in April actually.

"The clouds on the horizon are dark and black and full of lightening. I shall shutter myself indoors while the chaos booms around me only to re-enter the world when the sun shines again."


Shill · Oct 13, 2011 - 1:20pm
diegeiro · Oct 13, 2011 - 1:21pm

Food Prices/Inflation

What upsets me most in the prices our food is not just that the prices have gone up, but the quality has gone way down. And while you can get RBGH-free milk comparably priced with milk from cows given RBGH (growth hormone) it is almost impossible to find cheese and butter that is RBGH-free unless you buy organic. Organic cheese is prohibitively expensive. The price of regular butter is now not far from the price of organic so I am buying organic butter.

There seems to be a glut of dairy in the groceries right now. I'm not sure if it has something to do with the fact that dairy is one of the first things to be affected by radiation or not. As you may recall, milk was one of the first things that was found to contain radiation. I don't think any agency is monitoring this.

I know I need to eat more fresh produce and this is the time (harvest) to do that, but it has been hard for me to get excited about produce that probably has had some degree of radioactive exposure that is also not currently being measured. I am still taking a few drops of 2% lugol's in my morning coffee periodically, and a tablespoon of liquid hydrated bentonite before consuming milk.

One of the best ways we can overcome BIG FOOD which is connected to BIG PHARMA which is connected to BIG CORPORATIONS which are connected to BIG BANKS and BIG GOVERNMENT is to avoid GMO's and RBGH milk products as well as all processed foods. And by supporting local growers and suppliers. The tipping point in this area is relatively low in order to bring about change. I gave up corn products for a while since most corn is not labeled GMO free. I can now find both GMO-free and organic corn chips, cheesy puffs and canned corn. Believe it or not you can really taste the difference. Now I have given up GMO potatoes which means no french fries and most chips. Kettle Brand is GMO free so if I need a chip fix I go there. I will be making home fries of broasted rosemary potato wedges with olive oil when I need a fry fix. No more fries or restaurant potatoes for me. I'll bet I lose weight!

ewc58 · Oct 13, 2011 - 1:23pm

Just like the Good Old Days Turd

I'll second what Eric O. said earlier, this post has the feel of the old days. Good on ya to pull it up from the roots. And btw, it was freakin' excellent. yes

The Inflation vs. Deflation debate? Would it really surprise anyone (other than Mish maybe) that there is no either-or there? This is what's known as a false dichotomy. But this fact should hardly give any of us any comfort because in actual fact, we are dealing with the presence of both...

Inflation: you'll feel this side of the equation when, like Mrs. F, you go food shopping. Or the gas pump. The cost of many of the things you need to remain alive and employed are going up. Staples could rise much more from here as the value of the frn's in your pocket continue to be debased and their buying power is further eroded.

Deflation: Umm, go and try to sell your house and get anything close to the valuations we saw just a few short years ago. No inflation to be found up in here.

Yes this is over simplified. I can think of plenty of exceptions on both sides, I'm sure we all can. But it helps to make the point that in the Real World at least, the average Jane and Joe are having to contend with the presence of both of these negatives in the current mix. Getting hammered from both sides. Oh lucky us.

BagOfGold Stormdancer · Oct 13, 2011 - 1:25pm

"Splitting Hares"...

Stormdancer wrote:

Unfortunately some of us may be eager to try some unconventional foods in days to come. You can do much worse than spitted split hare :)

One of my ways to clean a rabbit...

Bag Of Gold

rpboxster Ferd Torgerson · Oct 13, 2011 - 1:25pm

More inflation examples

Ferd, how about coffee. None of it is sold in lb bags anymore. All are 12oz, and the price keeps going up.

Re dairy and beef, the prices skyrocketed several years ago when the gov't was pushing ethanol to save the planet. Almost all corn planting went to ethanol (subsidized), driving the up the cost of feed, and everything else corn-based. It was like the perfect 'progressive' storm--stop meat eaters, global warming and foreign oil all in one gov't program.

Shill · Oct 13, 2011 - 1:36pm

Enjoy this great

Enjoy this great compilation.


The History of Central Bankers - The Creation of the Federal Reserve (1865 - 1913)

Part 1 starts at the bottom.


Moderator Jane · Oct 13, 2011 - 1:37pm

Herman Cain Posts are Being Moved to Politics Forum

Let's keep the 2012 election arguments off the main blog and use the forums for that:

I'm moving the last two Cain posts to the forums. Please continue the discussion in the forums.

ewc58 · Oct 13, 2011 - 1:38pm

Tell me Bozzz

Is what we saw what we got with Owebombya? Caveat emptor.

When in doubt, refer to the plaque that Shill just posted above.

And yeah, how 'bout that Iran "story"? Like I said yesterday, they're already walking it back.

Believe nothing from these nice folks and we'll be just fine.

altman2 ewc58 · Oct 13, 2011 - 1:39pm

Debt money is contracting, Non debt money is expanding

So, you have deflation on things that depended on the money created by credit, like housing. You have inflation where things were paid for by all other forms of money which did not depend on credit, like commodities. 

ewc58 · Oct 13, 2011 - 1:40pm

seems I just snuck that one in CJ :-)

didn't see your post. And anyway, not really about Cain per se.

Maryann · Oct 13, 2011 - 1:45pm

Ice cream.....

Cali lawyer, here in the south the premium ice cream is Blue Bell. They pride themselves on selling 1/2 gallon, while yes, everyone else is shrinking their packages. My kiddo loves Blue Bell. Last summer I would buy it on sale for 2.99. I'd stock up. This year the sale price is 3.99. I did buy an ice cream maker but haven't found a recipe I like, and with the price of cream up, who knows if that would save anything anyway.

BOG, your videos crack me up! : D

And toilet paper, well, they just made the inside cardboard rolls larger!! 

Shill · Oct 13, 2011 - 1:47pm

Mortgage rates rose today

Mortgage rates rose today folks At some point the rate hikes are not going to stop. When price inflation becomes more obvious, rates will soar. The opportunity to lock in current low rates is not going to last much longer.

As one can clearly see in this afternoon session TBT is rising again. And it looks like the DXY wants to take a dirt nap. Dollar longs take note.

BASEBALL 13 · Oct 13, 2011 - 1:48pm

Re: California Lawyer, Pablo, Gramp

Regarding the discussion about food price inflation, my experience was also with those small, valuable, energy-packed, cavity-causing choco-nugutty-nutty foodstuffs called candy bars. During my playing days, I practically lived on them.

Many years ago the manufacturers started stealth food price inflation by substituting inferior ingredients. (prices remained stable)Next came the marketing war with packaging the gave the appearance that your candy bar, which had been reduced in size by 20%, was still the same size because the package was the same size. (prices begin creeping upwards) Next came the brilliant ploy of producing smaller, bite-sized candy bars in the same packaging. (prices still rising...)"See here, we're thinking of you the consumer! We're going to help you portion your consumption by making bite-sized chunks." Today's Baby Ruth is truly baby-sized. 

Remember the phrase "Less is More"?

It's not called an oxymoron for nothing.

ewc58 · Oct 13, 2011 - 1:51pm

Shill, if I may...

Interesting Fed stuff, thanks for posting the link. Just clicked over and noticed the first 2 parts... The thing that caught my eye was the dates (years) the first 2 parts cover. Another demonstration of how long the Money Masters have been at their "Craft".

History of Central Banks and why we must End the Federal Reserve

Part 1 (48 B.C. - 1791)
Part 2 (1791- 1865)

Shill · Oct 13, 2011 - 1:52pm

Your going  need too have a

Your going need too have a smaller ass going forward lol.

But hey it may be smaller, but its STRONGER!.

Eric Original · Oct 13, 2011 - 1:55pm

Awesome Thread

One of my favorites in a long time.

Doc J, that's one of my all time favorite Monty Pythons. I also like the sound of that Anarcho-Syndicalism thing. Gonna give that a try... :D

Got back from the grocery store. Same sad tale as all the above. Making treats for the girls swim team for the weekend. Had to go with generic rice krispies and generic marshmallows, to make generic rice krispie treats for the little darlings. Pre-cut baby carrots? Uh, no. We'll peel the real ones. Coupons on a bunch of items. It's the only way to get out of the store and still feel like you haven't been completely hosed.

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