Home > Main > Why Shadow Government Statistics is very, very, very wrong.

Why Shadow Government Statistics is very, very, very wrong.

February 1, 2011 Leave a comment Go to comments

Update: Welcome Hogvilleians!  You’re totally crazy of course.  Simply read the entire article, and you’ll see why.  I didn’t just choose one item and say “See inflation doesn’t exist!” Nope – I said very clearly “If we have 10% inflation, the government makes 8%+ per year just issuing debt.”  Please read the entire article before making yourself look stupid.)

I see stuff like this on a supposedly intelligent website and I just despair for the future of humanity. Jim John Williams has been running Shadow Stats for a long time now, but that doesn’t say anything about the quality of his analysis.

And for some reason, people like to believe these stats instead just remembering how much stuff cost back in the day.

Look at this chart.  According to Shadow Stats, the average inflation rate since 2000 is clearly at least 9%.

I decided to do the math. Since we are fully in the year 2011,  we would need to adjust the level of prices tby  1.09^10 to find out what prices were in 2000.   I just went to the store and got some milk – milk is $2.99 a gallon at CVS, and the average price of a gallon of milk is $3.19 across the US, according to the BLS.

This would imply that in 2000, the cost of a gallon of milk was 3.19/1.09^10 or  $1.34, or close to it. But I don’t ever remember paying $1.34 for a gallon of milk, not even in 1980.  In fact, I remembrer paying about $2.79 a gallon in 2000.   And that’s what the BLS numbers say too.  Go back a few years more and that gallon of milk should have been nearly free, according to Shadow Stats.

From dumb to dumber: Shadow Stats says the government earns 5.6% per year by borrowing money!

But this isn’t what troubles me.  It troubles me that if John Williams was correct, people have been throwing money at the U.S. federal government – literally begging them to take their money.

We know a simple identity about treasury debt.  The yield on Treasury debt should equal inflation plus some real rate of interest.  This isn’t controversial in the slightest.

So if we plug in the Shadow Stats numbers with the known yields that were paid in the market for Treasury debt, we can get an idea of what the real rate of interest these lenders received to lend to the U.S. Treasury.

Here is the grade school level math:

Treasury Yield   = Real Yield + Inflation

or

Real Yield = Treasury Yield – Inflation

[Update 4/11/2011:  Yes, I know that the real relationship involves multiplication, and not addition.  For numbers close to 1.00, adding is a close estimate - at least according to the CFA material and Bodie/Kane/Marcus]

We know the Average yield in the 5 year over the last decade was 3.4%.  A rough estimate of shadow stats inflation would be 9% per year since the year 2000.

Real Yield = 3.4% – 9.0% = -5.6%

To believe that Shadow Stats is true, we must believe investors have been paying 5.6% to lend to the treasury for an entire decade! Now, I support a bit looser government purse than most people.  But by these standards, I might as well be Von Mises!  These people who are giving the U.S. government nearly 6% per year are paying the U.S. government to issue debt.

These people paid 5.6% per year to lend to the U.S. government in real terms.  I don’t buy it.

There is also another horrific conclusion from this exercise.  If we take Shadow stats seriously, the U.S. Government earns 5.6% per year from borrowing money.  Yes, according to John Williams, the government earns massive returns by borrowing!

Go through the math yourself, and borrow money for 10 years at 3% when inflation is at 100%. Use these numbers, because it will be hugely clear: Borrowing at a lower rate than the inflation rate is a path to wealth. You’ll be easily able to pay back the debt with far cheaper money in the future.  A few hours of work at a Starbucks and you’ll pay off a massive debt.  You’ll make a tidy sum just from borrowing.

[Update 5.13.11:  Wikipedia says borrowers make money when the real rate of interest is negative.  They use numbers very much like the numbers here to show this.]

There are many things I wish were true, like eternal physical life, and zero point energy.  But they are not true, and I must live with them.  Many people think the government is lying about inflation statistics.  Maybe the government is lying.  But if the government is lying, we need to reconcile this lie with other information. Data doesn’t exist in a vacuum.  We must reconcile any measures of inflation with daily price and yield  information from the most liquid debt market in the world.

[Update 2/2/2011 5:30am: The Wall Street Journal shows its intelligence by mentioning Shadow Stats.]

[Update 2/16/2011  3:37pm: The Daily Capitalist falls for this trick via the WSJ]

[Update 4/19/2011 Shadowstats is still wrong - but we are making progress in debunking the nonsense.]

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  1. May 12, 2011 at 10:05 pm

    This is a terrific piece TC. I expect to link to it quite a bit, when I get those comments about the fake Government inflation statistics. Thanks for this.

    • TC
      May 12, 2011 at 11:34 pm

      Thanks LGID!

      One mind at a time. I get 4-15 hits a day from searches for shadow stats related terms, so people are seeing this information. Inflation isn’t zero, but it isn’t 10% either.

      • michael
        May 26, 2011 at 9:26 pm

        Inflation in US may not be 10% but in the rest of the developing world it is 10-20% depending where you live.
        The US is fortunate that it does not depend on food imports but in the rest of the world esp. developing world food costs have dramatically escalted due to imports and failing weather a double whammy from which the US is shielded so far.

        • TC
          May 27, 2011 at 3:35 am

          It may not be quite that high, but the developing countries have higher inflation than we do. Of course, they could make that inflation go away in a matter of a few months by letting their currencies appreciate against the Dollar, and here in the U.S. inflation rates might go up another .5% or something, but that is another story.

          I wrote something about the potential impact of China solving their inflation problem by letting their currency appreciate against the USD. It turns out there would be very little impact on the United States. It’s all part of the hyperinflation hoax.

          http://traderscrucible.com/2010/12/21/the-hyperinflation-hoax-how-much-inflation-is-china-absorbing-for-the-u-s/

    • Brad Armstrong
      June 25, 2013 at 6:47 pm

      To pick a ‘specific’ single item (e.g. Milk (which btw food and fuel aren’t even included in the CPI)) is no fair way to make a ‘general’ argument. The fact that the government while going increasingly into deep debt has changed the manner of calculating CPI repeatedly is morally outrageous, incompetent, corrupt and will not end well. That the writer of this article supports “a looser government purse” shows that he is historically, economically clueless because loose government spending has been a primary anvil upon which social catastrophe has been forged repeatedly through human history. My father reminds me that my grandfather complained bitterly in the 1930’s that to feed his family of six children for a week took $5. What can you buy with $5 today? How much does it cost to feed a family of eight today? The difference has been stolen from you. Or, perhaps more correctly, the difference has been borrowed in your and my names and the bill will soon come due.

  2. soe
    May 14, 2011 at 1:07 pm

    Good choice with that milk. But… the graph shown on this page is not showing changes in price of milk. So you cannot prove that the graph is wrong by picking one item and showing that its price did not change at 9% rate per year.

    So, what about showing us some more examples? Like other food than just milk (this site http://data.bls.gov/cgi-bin/surveymost?ap which you linked shows that price of some items rose by 20-40 % since 2001 – yes, far from 9% per year, but also not so small rise as in case of milk). Or what about housing?

    Maybe shadowstats has it wrong. I don’t know how they calculate it. But you are too optimistic if you think that real price inflation is what the government tells you, that is, about 3% now.

    • TC
      May 14, 2011 at 1:31 pm

      Soe,

      I am with you. Inflation is really hard to measure. It could be as high as 4% a year right now. The government probably does a better job than anyone at measuring Inflation, but in the end, it’s an estimate.

      The Billion Prices Project is a great project. Google is working on economics statistics too.

      I don’t claim the BLS is perfect. I do claim that they are doing an ok job, and inflation is close to what they say it is.

    • TC
      May 14, 2011 at 1:36 pm

      Btw, I choose milk because it is something I happen to remember going to the store and buying for my family on my bike 30 years ago. It wasn’t $.20 a gallon, which is what Shadow Stats implies it must have been, given 10% inflation for decades.

      I don’t entirely agree with the hedonics. For some consumers, this underestimates the changes in their cost of living. And this means the lower class has expereienced greater inflation relative to their wage growth than official statistics indicate. But that is a wage problem, not an inflation problem. Inflation is and has been low for long time. Wages are flat, so they experience much more inflation relative to their budget.

      • FreeYourMind
        March 17, 2012 at 10:15 am

        Aren’t there ceilings on how much can be charged for milk in some states or areas?

        • TC
          March 21, 2012 at 7:07 am

          I don’t know. I’ve never heard that before

      • Timothy Tolstroy
        March 1, 2013 at 2:18 am

        Williams does not say the average has been 9%. In fact, in only one year does he reach 12% and that was 2008. Most of the years, before that, it was much lower. Since inflation compounds, the difference is very important. The real rate now is a little over 9%. But, frankly, I suspect that the reality is somewhere near, but a bit below Williams’ estimates. I remember, for example, quite clearly, buying milk in 2000 for $1.99 per gallon when it was on sale. I’d love to know where you buy milk for $3.19 incidentally, now, because I am paying $3.79 per gallon or more.

  3. July 8, 2011 at 9:00 pm

    Next time you should use cell phones instead of milk.

  4. Steve
    October 19, 2011 at 10:17 am

    The Fed is printing money. Soon the dollar will be as valuable as toilet paper. Your math is childishly inaccurate. The Givernment has been lying for years. Bet on it! Buy Gold.Steve

    • October 19, 2011 at 12:53 pm

      Toilet paper you can pay your taxes with is always valuable.

    • TC
      October 20, 2011 at 5:00 pm

      Let me do you a huge favor. Send me all of your dollars today. I’ll send you an equivalent number of toilet paper sheets.

  5. Tmoore
    December 5, 2011 at 5:02 pm

    This is the most idiotic commentary by a supposed intelligent financial person I’ve seen in a long time . The CPI, whether by the government or Mr. Williams, is a composite of many products, not just milk, stupid. Milk could have stayed the same though the entire 31 years and would not have affected the CPI. So your argument is dead wrong.
    Do you not know that the government changed the way they report the CPI? Doesn’t it make you wonder why the CPI with the new way it’s reported is LOWER then it was?
    You, with your little brain, cannot possibly do all those calculations and come up with an accurate number. I can’t either. Nobody can. Not even the government can.
    But it has to give everyone pause when they decide to change how they do it without someone overseeing that change and asking why.
    I’m glad there are people like Mr. Williams to question the government and give another voice to keep them honest. I’m glad to hear GOOGLE is getting in on it, too.
    Maybe, finally, we’ll have some truth. And won’t you look stupid if it comes out that the government was fudging the figures all along….

    • TC
      December 5, 2011 at 9:19 pm

      Did you even bother to read the post? It seems like you did not understand even the most basic idea behind this post.

      Plus, Google and the MIT program on prices are both going to show the government numbers are pretty good.

      • Clonal Antibody
        December 5, 2011 at 11:59 pm

        John Williams of Shadow Stats admits that all he does is add a fixed amount to the CPI numbers — which is what you see if you compare BLS CPI and Shadow Stats CPI. He just assumed that the CPI would be under reported by the same number as you went along the years. Yes the change in the CPI procedure leads to a discrepancy when the changeover takes place, but the new methodology adjusts and the difference (if any) vanishes with the years. John Williams does not use the old methodology. The impression that he gives (that he uses the old methodology to measure the CPI) is incorrect and misleading!

      • December 6, 2011 at 5:12 am

        Tmoore is right, the focus on milk is misleading at best, and idiotic at worst. The response by TC is evasive, and its support of “government numbers” is circular reasoning.

        • TC
          December 6, 2011 at 7:28 am

          Please. Please don’t make a fool of yourself.

          I was less than 100% direct in my dealings with Tmoore because, well, because I am a nice person, and I think he truly believes we have high inflation.

          Read the post carefully. The price of milk is an anecdotal example, a single example, of how Shadow stats must be wrong.

          But if you take the same analysis and apply it to nearly any product in the basket of goods, you’ll find the same kind of results. The prices Shadow Stats numbers imply are farcical.

          Then, I notice neither of you address this at all:

          “There is also another horrific conclusion from this exercise. If we take Shadow stats seriously, the U.S. Government earns 5.6% per year from borrowing money. Yes, according to John Williams, the government earns massive returns by borrowing!”

          John Williams claims the government is making money when it borrows cheaply. Claims do no exist in isolation.

          John Williams claims the government is making roughly 8% per year on its money, given the 5 year yield is 1% or so. We will have the paid off the debt in about 9 years.

          http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

          Please read and understand the post. I’ll be more direct with my next comments if you insist.

    • December 5, 2011 at 10:03 pm

      Look, there’s no need to be uncivil. TC didn’t say the the history of milk prices was a definitive measure of changes in the CPI, but he was making the larger point that if the idea that we have had 10% inflation for decades were true then working backwards we would expect to see much lower prices decades ago than we, in fact, see. We’re just not talking about milk here. We’re also talking about eggs, cream, cheese, wine, bacon, salmon, none of it has gone up consistent with the view that we’ve had 10% annual price increases for decades. here’s another example. Long ago, in 1985, when I thought it was wise to waste my money on new cars, I spent $11,500 for a Subaru Station wagon, 3 years later, I bought another new one, it was a more basic model, but it was still $11,500. I notice now, 23 years later, that the price of a new Subaru Forester, a car with many more features, but the closest comparable to a Blue DL Wagon I still own is $27,370, an average of 3.7% annual price increase over the period. But considering that a 2012 Forester is a very much superior car to my DL wagon, with many more high-end features including All-Wheel Drive, ABS brakes, Alloy Wheels, Air Bags, Automatic Climate Control and so one and so forth, it seems quite clear to me, at least, that the 3.7% estimate is way high, and that a better estimate is about 3% or less per annum.

      How about housing. The Condo I live in Alexandria sold for roughly 92K in 1991 when I moved in. Now it sells for about 205K, or roughly an annual price increase of 4% or so.

      I could go on and on with these comparisons, and I know that this analysis is nowhere near systematic; but it does make me very suspicious of the claims of Shadowstats. The goods and services I buy and use on a daily basis have increased very little in cost with the exception of health care expenses. We’ve got a bubble in certain food costs compared to a few years ago. But all in all I think the estimate of 10% per annum price increases for decades on the average is ridiculous.

      • TC
        December 6, 2011 at 7:34 am

        This is great. Medical costs are much, much higher. So is schooling. But most of the goods we use on a daily basis are not much more expensive than they were decades ago.

        Gasoline is very volatile and the price of gasoline did go up by a huge amount over a short time in 2008. But that comes after years of low increases or downright cheaper gasoline.

        • December 6, 2011 at 9:48 am

          Medical Costs and Schooling are much much higher. But we know why Medical Costs have out in inflation. There’s no free market operating in that area, no Government insurance for people under 65, and the people who “control” costs are unaccountable oligopolists and sometimes monopolists extracting very high salaries out the health care system. Medical Costs costs in most other industrial nations are controlled by either single payer or non-profit very tightly regulated systems. Their cost increases are aligned much more closely with general price increases in their economies.

          The cost of schooling is increasing for a variety of reasons, but again the fact that increases here are much more rapid than in other nations suggests that our combined private and State-school systems are too sensitive to the profit motive and too top-heavy with Administration. If we look at some other nations we see real eye-openers. For example, in Finland teachers are paid more than engineers well into six figures in dollar equivalents, yet costs are not rising rapidly. In addition, Australia, New Zealand, and Canada all have great educational systems with inexpensive universities and cost increases much lower than what we are experiencing here.

          The bottom line for me is that areas of rapidly increasing costs here in the US are often due to market failures, coupled with our resistance to making certain vital sectors of the economy Government-funded and controlled. The development of our systems using what we often characterize as privatization, or public-private partnership is very ad hoc and cost-inefficient, and it provides plenty of opportunity for private business to “loot” public treasuries. But this isn’t due to excessive Government spending causing demand-pull inflation as it is to lack of Government control over what it spends for fear of “over-regulating” or antagonizing private sector partners. I think we need to be more willing to study systems in other nations and bring a lot of their practices here, and escape from our very expensive not-invented here syndrome.

  6. MrPete
    May 16, 2012 at 6:44 am

    Your argument about milk is blatantly false — and you admit it.

    Next, why not admit that your argument about government making money on “their” money is also false. The government doesn’t have any money to earn interest on! They are deep in hock. And yes, they DO hope to pay down the debt with cheaper future dollars. If they could ever stop the financial hemorrhaging long enough to get a balanced budget.

    BTW, I could easily believe inflation has been 8-9% for the last 5-6 years. Lots of things have increased 50% over that time period. (Hamburger meat and soda are two that I notice.)

    • TC
      May 16, 2012 at 7:19 am

      It is not false.

      I paid $2.19 for a gallon of milk 2 weeks ago at costco.

      If you believe we have 8% inflation over the last several years, you are wrong. It’s that simple.

    • TC
      May 16, 2012 at 8:53 am

      Mr. Pete,

      The government does in fact have money. The math doesn’t lie on this. You should talk with a friend who knows about bond yields and run this widely known math past them and see what they say. They will tell you I am correct, if they have any idea what they are talking about. If they say I am wrong, well, they don’t know what they are talking about.

      http://en.wikipedia.org/wiki/Real_interest_rate#Fisher_equation

      This is the math that they should review if they think I am wrong.

      Regarding consumer inflation, every piece of data I check shows economy-wide inflation is running about 2%.

      Poor people probably experience more inflation in their lives than more wealthy people, yes. But this is not inflation across the economy. Across the economy, it’s two percent.

      And also remember, I am not your enemy.

    • MrPete
      May 16, 2012 at 11:41 am

      The dairy industry has price subsidies and controls, so it is not a valid indicator of inflation. http://farm.ewg.org/progdetail.php?fips=00000&progcode=dairy

      As for the Fisher equation and whether the government “has money”… Obviously, the gov’t does not earn income on money they have, because they don’t really have any money. The government borrows every single week to keep running. Typical cash balance is on the order of $1-200B, which is about 1% of the debt ($15+T). In other words, in practical terms because the gov’t has essentially zero cash, the only interest rate that matters from their perspective is interest rates paid rather than earned.

      What the gov’t has is debt. We’re agreed on that. And yes, they DO “earn” huge sums when inflation is high, in the sense that repayment is in cheaper future dollars. That’s the current underlying long-term strategy: inflate our way out of debt. You think -5.6% is ridiculous? Wait until hyper inflation hits, as it must sooner or later unless we get our house in order. Historically, every time a government prints cash with abandon, it is not too long before the house of cards falls.

      That’s a major factor ignored by your argument: the inflationary impact of unbridled printing of new money. Interest rates can only be held artificially low for so long. Once interest rates increase, the cost of all that debt will skyrocket, and things will get quite interesting very quickly.

      We’re already in ridiculous territory. You do recognize that major investors are not earning but are paying for the privilege of depositing large cash sums in the major banks? http://www.crainsnewyork.com/article/20110804/FREE/110809946 I’ve never seen that before in my lifetime. Crazy.

      Back to inflation. What do you disagree with when looking at the actual calculations involved in the alternate CPI view? Here’s their original article: http://www.shadowstats.com/article/aa871

      I find it difficult to complain that he’s got it wrong. The essential changes made by our government are:
      1) Don’t factor food and energy cost into CPI
      2) Use a “substitution” formula rather than constant standard of living formula. In other words, while people used to afford a high quality beef steak on occasion (at $2 a pound), it’s now priced out of reach. So let’s just ignore that, and swap in burger — of ever-decreasing quality. Once we can’t afford burger, they’ll swap in textured soy protein or something like that.

      BTW, here’s another reference that brings pause with respect to inflation: a chart from a year ago, showing (as of that point in time) price changes for a huge variety of commodities. Overall average: 20% increase in one year.
      http://www.escapetyranny.com/2011/02/15/inflation-anyone-check-out-the-12-month-price-increases-on-this-commodity-price-index/

  7. TC
    May 16, 2012 at 1:23 pm

    I know you think you are correct. And you have some decent points.

    But you are wrong.

    I really don’t have time to go into the details of core vs. all items, or hedonic adjustment of the basket of goods used.

    Commodity price increases are all based on speculation, not fundamentals of supply and demand.

    Please look up Izabella Kaminska from the Financial Times and read all of her articles on copper and oil, and iron ore too.

  8. TC
    May 16, 2012 at 1:26 pm

    Actually, just come over to monetaryrealism.com and see what you find. I have a prediction about hyperinflation in the U.S. up at longbets.org. You may find it interesting

  9. MrPete
    May 16, 2012 at 6:29 pm

    Mostly what’s said there seems basic. “Assets = Liabilities + Equity” is a nice simple accounting concept that works nicely here. :)

    I agree with a statement made there w/ respect to oil, and apply it to money supply: “The large increase in the cost of oil has not caused runaway inflation as of April 25, 2012, simply because it was not large and sustained enough.”

    Seems to me that trajectories are generally far more important than one-time events. If (as possibly is true) they manage to gain sufficient discipline to avoid continuous hemmorhage of cash, then we may not see the worst.

    (I won’t comment on various innumerate comments over there. The one that gets me glowering is when people talk about the need to increase tax rates on a given population. The reality is we need to manage revenue not rates. People just don’t understand the impact of price on revenue… both over and under-priced products/services result in lower revenue. Too few people understand that.)

  10. snowedin
    June 7, 2012 at 7:36 am

    New to this site (which I like, btw.) A quick comment to the inflation argument from a market perspective (I’ve been a banker for 28 years, 13 of which in bonds). The market uses CPI, period. Not because we are blind to CPI being a moving target that has biases. But because our internal (and I can speak for basically every econ analysis unit on wall street) “checking of the figures” people pretty much lines up with official CPI, at least to about 3 deviations, which is good enough.

    In other words, the market trades on the CPI the way the CPI is defined. If the BLS decides tomorrow to re-define CPI into a “SGS reality”, I am pretty sure the bond market would expect a higher yield (even though we already accept a negative yield today!)

    We don’t follow CPI religiously either. It is worth the granular analysis of BLS projections because one can discover holes in it (the bias) and exploit it (doesn’t mean a successful trade, though). Rest assured, no one in the bond market would tolerate negative returns of the magnitude SGS is suggesting – I would have been out of a job a long time ago, kicked in the nuts by my institutional clients. And for readers who think all of us in “the market” from bond dealers to sovereign funds, to insurance companies, pension funds etc are being hoodwinked by some BLS masterminds (fix: I know, we are ALL in on it….) significantly under reporting the data, I’ve got a bunch of surplus tin foil you might enjoy at a steep discount.

  11. October 27, 2012 at 10:54 am

    You are right in that we should not take everything we read on the Internet as gospel truth. However, the same goes for the arguments you provide in this post. Your arguments are very simplistic when making such bold statements about such an enormously complex subject as inflation. I don’t claim to know the answer to the question, or even to come close to the ‘real’ number, but I do know that inflation is not the full measure of how well off we are today.

    If you look at all three of John Williams graphs together, i.e. Unemployment, CPI and M3, you will find a much clearer picture of what is really going on. The dramatic increase in Money Supply says more about the matter than any other statistic. The Macroeconomic Laws of Supply and Demand are very straightforward: You simply cannot drastically increase the money supply without decreasing the value of your currency or buying power just as drastically. One of the reasons that you don’t see the dramatic response in the rise of the price of milk, or of many other basic commodities, is that there are other more complicated forces at work. The Fed has great power to manipulate our collective economic psyche through the Interest rates they charge on the ‘money’ that they create out of nothing. The Fed has the power to manipulate the short term interest rates, which they are keeping close to zero, but not they do not have the same power to manipulate the long term interest rates, or bond rates. The latter rates are where the worries about inflation become significant as these are the rates that affect the most costly portion of sustaining ourselves, i.e. housing. The current low interest rates make borrowing money attractive, and we must remember that this sort of easy money essentially drove the housing collapse that started in 2007. The major banks are buying up defaulted loans for pennies on the dollar – essentially – stealing the wealth of the home owners who are now underwater. The underwater homeowners’ wealth did not simply disappear, instead, it was rather moved into other people’s pockets. This is also a very sophomoric explanation for this complex problem, but you cannot deny that this is going on to some degree in the world today.

    Note that both deflationary and inflationary forces are constantly at work and can be used to control the wealth of the world, and that these forces are not necessarily opposing factors. Currently, we are in a majorly deflationary market with regards to housing. Great for future buyers, terrible for current owners. My own home has dropped in value from $320k in 2008 to $250k today, and I am now $40k underwater – in just 4 years! The same phenomena is happening all over the country. Mr. @TC, please tell us how you are doing with the value on your own home, and then factor that in with the price of milk. In addition, we must also consider the degradation in income levels along with the unemployment levels. How many of us have had to take salary decreases, pick up second or third jobs, food stamps, etc. just to buy that gallon of milk? I know my own income is only a fraction of what it was in 2008, thus, my perceived increase in the price of that gallon of milk far exceeds the 10% or so increase in price per year that Mr. Williams suggests.

    You have suggested a terrible standard (milk) to base your essay on. I know this was just for an easy illustration, but you do so with great harm to the very arguments you use to show how wrong Shadowstats.com is. Why not base it on something which has had a very stable purchasing power for thousands of years, like Gold or Silver? Since 2008, Gold has doubled from $800/oz. to over $1600/oz. Did it double in value (i.e. purchasing power) over 4 years, or did it double in price over 4 years? IMHO, I would say the latter is more true, which means the inverse for the value of the dollar. Many sources say that the value of the dollar (remember Supply and Demand) has dropped 40% in the last 4 years. This is right in line (inversely) with the doubling of the price of Gold. True, Gold cannot always be used as a measure of inflation, but this is more often due to the manipulation of the price of Gold by those who have a lot of it. In February, when Mr. Bernanke announced he will be keeping interest rates low for the next two years, millions of dollars of Gold were immediately dumped on the market to manipulate the price and make Bernanke look like a genius. More recently, Gold shot up $50/oz. within 90 minutes of Mr. Bernanke’s QE3 announcement last month. Did Gold really get that much more expensive in 90 minutes, or did the fact that the Fed announce that they will be injecting $480 Billion into the economy in the next year cause that rise.

    Manipulations are occurring in many areas – Just look at the current LIBOR scandal, and the massive derivatives losses that major banks are experiencing from their risky practices (JP Morgan Chase among others). These losses will not go unnoticed in the long term and will hit our pocketbook in some form or another, guaranteed.

    Things that make you go Hmmm…

    Looking forward to more enlightenment on the subject. Thanks All!

    —————————-

    Central banks debase our currencies but mostly debase our trust; they are debasing our society. “Next to language, money is the most important medium through which modern societies communicate” Bernd Widdig

    • TC
      February 14, 2013 at 7:56 pm

      “The dramatic increase in Money Supply says more about the matter than any other statistic. The Macroeconomic Laws of Supply and Demand are very straightforward: You simply cannot drastically increase the money supply without decreasing the value of your currency or buying power just as drastically. ”

      You have to understand I do not see much evidence of a link between what you call “the money supply” and real world prices. The money supply statistics you say provide a fuller picture of what is happening in the world and what I see in inflation and the purchasing power of the currency are nearly unrelated.

      This is not a trivial point, or something that can be hand waved away. My strong contention is that M3 is not linked to prices or unemployment. Here is MZM vs. inflation

      http://research.stlouisfed.org/fred2/graph/?id=MZM

      I don’t see a relationship here, because there isn’t one.

      Then, this isn’t even the point of my post. The point of my post is that John Williams is wrong. We do not have 8% inflation.

  12. Sandman
    April 22, 2013 at 12:51 pm

    3.19 for milk?!? Where are you buying your milk at Nordstroms? I live in the Los Angeles area where it’s crazy expensive yet I regularly see milk on sale for $1.99. Of course I don’t buy that garbage. We only buy organic milk which is typically $5 or $6 per gallon. Those prices have pretty much nothing to do with inflation and everything to do with the approval of rBST. Australia has California Haas Avocados for sale at fifty cents a piece yet they regularly cost $1.00 here in California where they’re grown. :p

  13. Red Scourge
    May 14, 2013 at 8:48 pm

    People buying bonds at low rates does not necessarily infer that inflation must be lower, an equally plausible explanation for why people buy bonds, and perhaps a more believable one, is that people make poor decisions when they have insufficient information with which to make good ones. It doesn’t seem all that unlikely that broke desperate governments comprised of mostly corrupt people who have access to the data which otherwise allows investors to make good decisions might be willing to play with the numbers in order to make some money (and stand a chance at getting re-elected).

    After all, only a country of idiots would allow their government to put $16 trillion on their tab without breaking out the pitchforks (unless they’ve been banned first). Since even those who love todays massively unsustainable level of entitlement spending realize that the debt is becoming a problem, so the government is going to either have to cut spending and not get re-elected, or find increasingly crafty ways to hide how they get their money from the public.

    • May 14, 2013 at 8:54 pm

      If I were making 5% profit on whatever debt I rack up by selling my debt to a sucker, I’d be silly to not rack up as huge debt as I can get away with, and if people start to complain about it, I’d want to pay a bunch of experts to tell people that what I’m doing is sound fiscal policy, so that people shut up about it, and of course call my critics conspiracy theorists.

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  15. July 22, 2013 at 8:21 am

    Your milk example is not good, maybe they compensate the price/kg with water or other shitty methods, standard milk in France is bullshit and undrinkable, I always buy organic high quality milk which you call in US “real milk”. This is like injecting air in products or shrinking food quantity in packages staying the same size or even fraud in quantity which is very common. I trust more SGS than any other stupid “official” numbers.

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    Wow! Your kindergarten self applause writing style leaves me to believe you not only play guitar, ferment wine but you also mislead people as much as all the other junk bondsmen, and you probably like John Mackey

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  21. Soluna
    May 3, 2014 at 2:52 am

    Good article except milk prices are controlled by government subsidy and is not a good indicator of inflation. You can go back into newspaper archives and get ads for other consumer goods and then compare prices to today.

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