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Inflation:
Hell to Pay
by Michael
Sall
May 2, 2012
I have a
problem with the methodology used by our government to measure
inflation. Let
me explain.
In business
we segregate operating expenses (those costs that recur on a regular
basis),
and capital expenses (costs that are non-recurring and are better
understood as
a longer term “investment”), such as equipment purchases, real estate
purchases
and so forth. In our personal lives, rent, food and gasoline would be
considered operating expenses (recurring expenses). Buying a house (but
not the
ensuing mortgage payments), a computer and television would be more
like
capital expenses, i.e., not generating rapidly recurring costs.
Last year,
our home operating expenses suffered from 10% food inflation, probably
30%
energy inflation, large increases in airline ticket prices and, at the
same
time, health care and education inflation are still running at 6% or
higher.
But we are told by Bernanke and company that inflation is running at
around 2%.
The reason for this financial-babble-jujitsu is that he is combining
reduced
capital expenses with increased operating expenses, a methodology which
would
cause endless bankruptcies if used for decision-making in business.
So, the
value in your home went down the last few years, and computers are
cheaper, as
are TVs and many other large ticket items. But when those declines are
combined
with increases in day-to-day expenses, the net increase is only about
2%.
Hence, the Bernanke proclamation.
Well, I
don’t need the latest model computer or TV to survive, and I don’t need
a new
car or home. But I do need food, energy and health care. And they take
up a
large percentage of most household budgets. Cheaper houses, TVs and
computers
don’t offset anything, and they certainly don’t help pay household
bills. So
the inflation rate most Americans live with every day is closer to 6%
than 2%.
If you
think that is bad, the following is far more depressing. BBB, aka
Banana Ben
Bernanke (banana republics have been printing money excessively for
decades),
has repeatedly told us that he sees no sign of inflation and, as soon
as he
does, he will raise interest rates and tamp it right down. Nothing to
worry
about. Laurence Meyers, Federal Reserve Governor from 1996 until 2002,
similarly said that controlling inflation is simple. We know how. If
the
inflation rate pushes above 3%, we will raise rates and it is easily
controlled. The arrogance of these two men is exceeded only by their
blindness.
Below are
excerpts from a Bloomberg piece by Amity Shlaes listing inflationary
cycles and
assigning causes. The speed with which these cycles occurred can be
likened to
a fire spreading through a dried timber building. “When you see the
flood, it
is too late to build the arc.” I make no claim to understand all the
dynamics
governing inflation, and neither do I know when the cycle will occur.
It could
be one, 3 or 5 years from now, but the seeds have been planted, and
this is all
going to end very badly.
“Consumer
price index for urban areas went from 1 percent in 1915 to 7 percent in
1916 to
17 percent in 1917. How did it happen? The Treasury spent like crazy on
the
war, creating money to pay for it, then pretended that its spending was
offset
by complex Liberty Bond sales and admonishments to citizens that they
save
more.”
“In 1945,
all seemed well: Inflation was 2 percent, at least officially. Within
two years
that level hit 14 percent.”
All
appeared calm in 1972 too, before inflation jumped to 11 percent by
1974, and
stayed high for the rest of the decade, diminishing the quality of life
for all
Americans.
“The thing
about inflation is that it accelerates. The acceleration hit storybook
levels
in the most sudden case of all, that of Germany in 1922. Many financial
analysts thought the Weimar authorities weren’t producing enough money.
“Tight
Money in German Market: Causes of the Abnormally Rapid Currency
Deflation at
Year-End,” read a New York Times headline. The Germans didn’t know it,
but they
had already turned their money into wallpaper; the next year would see
hyperinflation, when inflation races ahead at more than 50 percent a
month. It
moved so fast that prices changed in a single hour. Yet even as it did
so, the
country’s financial authorities failed to see inflation. They thought
they were
witnessing increased demand for money.”
“Germany in
the 1920s is always the extreme example. But one form of denial then
warrants
comparison to the U.S. today. Bernanke talks about prices in one area -
energy,
for example -- as different from those in the rest of the economy. The
Germans,
in their denial, thought their problem was limited to exchange rates,
and that
their domestic economy had hope. Risibly, Chancellor Joseph Wirth tried
to tie
down prices by regulating foreign currency. The equivalent, and
equivalently
risible move today is the Ralph Nader effort to get the administration
to push
down oil prices.”
Mankind has
been in search of perpetual motion machines, a loom to spin gold from
straw,
and many other impossible dreams. Bernanke and company (liberal
economists) are
just one more in a long line of men chasing a fool’s dream. Their
result will
be the same tragedy as all the others.
Source:
familysecuritymatters.org
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and other articles at Mail Magazine 24
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