Friday, April 28, 2006


This piece comes from yesterday's Whiskey & Gunpowder. It discusses various issues feeding our current economic mess. One issue worth remembering, in my opinion, is the meaning of the term "inflation." As currently understood, because of the various metrics our government feeds us, inflation is just "one of those things" that happens, a part of "the business cycle," measured through some arbitrary "basket of goods."


CPI, Core CPI, PPI. They're all crap. The government chooses a variety of things that cost money and determines whether the prices are going up or down. As if some mystical Wizard of Money sprinkles fairy dust on the "basket."


Core CPI, the "basket" that omits energy & food, is made up. It's all made up. Inflation is, simply put, an increase in the amount of money + credit. More money and credit chasing a static amount of goods? Prices up; inflation. Less money and credit chasing a static amount of goods? Prices down; deflation. Though the latter hasn't happened since 1933.

And where does this increase in money come from? The Federal Reserve. The "printing press." Milton Friedman's "helicopter drop."

Inflation is a hidden tax. Everyone who holds cash sees the value of that cash go down. Why is gold going up? Why are all commodities going up? Why is food going up? There are plenty of reasons in play, but you'd better believe that the massive increase in money supply is a key factor.

* * *

Why do we have inflation every year? Because the Fed increases the money supply. And why do they do this? Because it's in the interest of . . . well, just about everyone in Washington to do so. Inflation cheapens money. And who wants cheap money? Debtors. You owe $100, it's easier to pay it off if you can "buy" $100 for less. The United States is the world's greatest debtor.

Connect the dots.


Blogger Mr Furious said...

Makes sense to me.

11:59 AM  
Anonymous Anonymous said...


Not to mention the substitution formulas they use to adjust price behavior. Example: if price of prime roast goes up, they assume that a substitute is available and the increase in price is adjusted to reflect that some number of consumers foregoes primer roast for, let's say, hamburger.

How do they figure? Basically by saying 'abracadabra', as anyone who shops regularly to feed themselves can attest.

The CPI is a joke, and a cruel one at that, inasmuch indexing for lots of things are tied to this sham.



4:46 PM  
Anonymous donna said...

Went to the coin shop today; gold was $675 (including spot) for a one-ounce Krugeraand; silver was $14.40 (including spot) for one ounce. On 4/4/06, a Krugeraand was $604. (Approximately one year ago, it was around $445.) The staff told me they'd "heard whispers about $1000-oz gold by the end of this year." Geez. Try by August.

You following how a penny is currently worth about 1.4 cents?

2:49 AM  
Anonymous Mike said...

Because the price of copper has gone up so much?

9:44 AM  
Anonymous donna said...

Absolutely because the price of copper's gone up. The staff at the coin shop told me people have told her they're hoarding pennies to melt down. That's illegal, of course. Things are happening fast now, I think.

12:29 PM  
Blogger Chinnu said...

Hi Mike ... nice post.

3:40 PM  

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