Fun, Fun, FUN! with the BLS' false reading of inflation...
WHAT a great time for an observer with a sense of mischief! Writes Bill Bonner in his Diary of a Rogue Economist.
This year's presidential campaign is the most absurd and remarkable we have ever witnessed.
After more than two centuries, Americans are finally getting the democracy they deserve – one that is grotesque...slimy...and immensely entertaining, albeit in the mud-wrasslin' genre.
In last Sunday's debate, one candidate actually promised, if he wins, to put the other one in jail.
The other one, with a straight face, said she would risk provoking Russia into a war by backing the al-Qaeda-linked rebels in Syria.
Who could possibly be so earnest and civic-minded as not to laugh?
But the financial world is our beat here at the Diary. And it, too, keeps us chuckling.
Midweek, stocks and bonds sold off. The British Pound plummeted versus the Dollar. And Libor – the rate some of the world's largest banks offer each other for short-term loans...and a key gauge of the health of the banking system – spiked.
Most commentators tell us that investors are reacting to the smoke signals from the Fed.
Apparently, after eight years of "emergency" low interest rates, America's central bankers are wondering what the emergency is.
Now, they hint, they will tighten credit conditions as though they meant it.
The absurdity of fixing interest rates in what is supposed to be a free-market economy must be working on their innards. They go to bed at night gassy and bloated and wake up with their heads aching...
Central banks set out to mislead investors, households, and businesses with their phony money and fake interest rate signals.
Now they are lost, too.
With no honest money or true prices to guide them, they don't know east from west or up from down. They don't know where they are...and they are afraid they might end up where they don't want to be.
The fear is interfering with their digestion.
So, they talk about returning to "normal." But there is no way to do that. Not without suffering the cramps and pains they so richly deserve.
As the manager of the world's biggest hedge fund, Ray Dalio predicts even a 1% increase in the Fed's target lending rates would mean trillions of Dollars of losses in stocks and bonds.
How could the Yellen Fed sit still for that after pretending to protect investors from risk for the last eight years?
And as we've been pointing out, there is no reason to expect the losses would stop at a few trillion Dollars.
The greater the absurdity, the greater the panic that follows it. In a matter of weeks, as much as $75 trillion could be wiped from the world's asset prices.
There is currently about $14 trillion worth of debt trading at the most absurd (negative!) rates in 5,000 years.
US stocks are near record highs...even as corporate balance sheets have deteriorated and GDP growth has stalled.
And "inflation" and "unemployment," as measured by the Bureau of Labor Statistics (BLS), are largely fantasies.
And the little people know it...
Our friend Rob Marstrand from OfWealth just looked at one key price – one that is near and dear to the working class: the price of a pickup truck.
According to the BLS, prices on automobiles have barely budged over the last 20 years. But that is clearly absurd. A new Ford F-150 pickup costs upward of $26,000 today. The same basic truck was about $15,000 in 1996.
The BLS says the two are actually the same price because today's pickup is "better".
Yes, that's right. It is better. More electronic gear. Airbags. And so forth. So, BLS argues that, Dollar for Dollar, you get the same amount of truck today as you did in 1996.
But, of course, the man who needs a pickup truck cannot go to the dealer and say, "I just want $15,000 worth of pickup. You know, like I got in 1996."
He still has to pay the full $26,000...and it still does basically the same job it did during the Clinton administration. It takes him and his tools from point A to point B. But it costs him 70% more.
The other big thing a working man needs is a place to live.
According to the BLS, since 1996, housing prices have gone up about 50%. But when we do a little fact-checking, we find that, 20 years ago, the typical home sold for $137,000.
Today, the median sales price is $305,500. Wait, that's not 50% more. It's 123% more. We didn't check with the BLS, but we suppose the discrepancy is due to the same "adjustment" made by wonks who think that today's house is "better".
Maybe so. But the typical working stiff still has to live in the typical house and drive the typical truck to his typical job. He can't say, "I'll just take the house, but hive off a couple of those bedrooms. I can't afford them."
But wait...Does the typical working man earn 70% more today than he did 20 years ago?
According to the Census Bureau, in 1996, the average nominal (unadjusted for inflation) personal income of people with "some college" but no degree was about $29,000.
Today, if we read it right, it is $40,000. That's an increase of about 38%, not 70%.
The feds – with their phony adjustments – show the typical person standing still. But he is not. After two decades of prices rising more than three times as fast as incomes, the typical person is far worse off than he was 20 years ago.
His major expenses – and we have not even mentioned tuition and medical care, which even the fed's fake numbers show are 200% and 100% higher, respectively, than they were in 1996 – cost him $109,000 more than they did 20 years ago....and he has only $5,000 more income.
Why else would voters spend a minute listening to a scalawag such as Donald Trump? Fake money, fake statistics, fake interest rates – they've created an economy where the Trump voter has less real income.
They know they have been bamboozled. They count on Donald to do something about it.