Starchild,
What went wrong (and right) in SF on 4/18/1906 and after? Was the Govt the problem or the solution? It depends on who you read. There are a variety of books chronicling the SF Earthquake.
Read this informative review by libertarian Timothy Sandefur of three SF earthquake histories:
http://libertyunbound.com/archive/2006_04/sandefur-francisco.html
Best, Michael
If the cpi was calculated as in the Carter years, your Grandma's social
security check would be seventy percent higher.
Right now unemployment calculated the way it used to be in the Kennedy
Admin would be 12 percent and inflation is running above 7 percent and
we are in a recession right now...
and meanwhile Nancy Pelosi votes to fund the continued occupation of
Iraq...
SHADOW STATISTICS
by Chris Mayer
Ben Bernanke, Fed
chairman, recently
delivered an upbeat view
of the
U.S.
economy. It was cheerful,
optimistic...and
delusional.
The official government
statistics hide many
warts on the face of
the U.S
economy. Like makeup
dabbed on an aging film
star, they are an
attempt to
cover the wrinkles and
present a veneer of
youth. To most people,
this is
no revelation. Like
plastic surgery and
tummy tucks, it is what
stars do
to keep up appearances.
However, few know the
extent of the deceit.
What if you learned that
inflation were closer to
7% than to the official
3%? What if
unemployment
were closer to 12%,
rather than the official
5%? What if the economy
were
actually contracting, as
opposed to growing?
What follows is a
partial peek at the
economy - sans makeup.
And,
more
importantly, what it
means for you and your
hard-earned dough.
It was the genius of
writer George Orwell
that he chose to build
his
dystopia on the
foundations of language
and information - how it
is
used
to deceive, manipulate
and control. His
chilling novel 1984
stands
out
precisely because it is
only a distortion of
things that are
happening now
and that have always
happened. Orwell's
dystopia is a mirror in a
funhouse, as you see
enough of your own world
in this disturbing
reflection.
Thankfully, there are
still some people doing
the important work of
getting at the truth
behind the official
statistics - piercing the
veil of
Newspeak, sweeping away
the cobwebs of sham.
John Williams is an
economist
dedicated to doing just
that. His Shadow
Government Statistics
reveals the
extensive rot under the
floorboards of the U.S.
economy.
Let's take the official
inflation rate, tracked
using the consumer
price
index, or CPI. The idea
behind the CPI is to
have a fixed basket of
goods
and track how the prices
of these things change
from year to year.
It only
gained prominence after
World War II, as a way
to adjust autoworkers'
labor contracts, a
practice that soon
spread.
Over time, its
importance grew and more
people looked to it as a
gauge of
general price inflation -
and, hence, to get a
feel for the health
of the
economy.
The thing is, the way
the CPI is calculated
changed dramatically
over the
years. Politicians have
figured out that these
statistics are useful
in
winning elections. Ergo,
nearly every
administration has
altered the
calculation. And always,
the changes made the CPI
lower. Every
effort to
change the CPI, by
design, aims to make the
economy look "better"
than it
looked before the
changes.
The accumulation of
these changes creates a
huge difference over
time.
It's like making a
series of small changes
to a ship's course in the
midst
of a long voyage. Soon,
you wind up way off
course, miles and miles
from
where you think you are.
The chart below is from
William's Web page.
It
shows the extent of the
difference, which is
just massive. The rate
of
inflation using only the
pre-Clinton era CPI is
closer to 7%!
The "Experimental C-CPI-
U" is another innovation,
introduced by the
Bush
administration to lower
the CPI yet again, once
again to paint a
kinder
portrait of the old hag
known as the U.S.
economy.
But it's about more than
just making the economy
look better. For
example,
since increases in
Social Security payments
link to the CPI, a lower
CPI
also saves the
government money.
According to Williams,
if you used
the
CPI when Jimmy Carter
was president, you'd get
Social Security
checks 70%
higher than today's
levels. Yes, 70% higher.
The government also
duped all those people
who thought it was such a
great
idea to buy TIPS
(Treasury inflation-
protected securities).
Changes
in the
CPI determine the
interest paid on these
bonds. The higher the
CPI,
the
more interest paid to
bondholders. Some people
loved the idea,
figuring
here was a bond that
would keep pace with
inflation. Given the
government
manipulates the CPI, you
can be sure the interest
rate paid will not
keep
pace with inflation -
nor has it ever.
The manipulation of the
CPI explains the great
disconnect between
what the
man in the street feels
when he pays his bills
and what the
confident,
well-dressed Fed chiefs
and politicians try to
tell him. The cost of
living is rising a lot
more than they want you
to believe. At a 7%
annual
rate of inflation, the
cost of living would
double in about 10 years.
Looked at differently,
the purchasing power of
your dollar will fall
in
half.
What about unemployment?
The government, since
the time of the
Kennedy
administration, has been
changing the definition
of "unemployed."
Again,
many small changes over
time lead to dramatic
end results. According
to
Williams, if you back
out the changes, you get
an unemployment number
closer to 12%!
Let's look at the
federal deficit -
basically, the amount of
money
the
government is losing
every year. The official
deficit for 2005 was
$319
billion. However, this
excludes unfunded Social
Security and Medicare
obligations. Throw them
into the mix and
calculate the deficit the
way a
business does in its
financial statements -
and you get an annual
deficit
around $3.5 trillion.
That's more than 10
times the so-called
"official" deficit. By
Williams'
calculations, you could
raise the tax rate to
100% - dump everyone's
salaries into the U.S.
Treasury - and still
have a deficit.
Years of such deficits
have created a mountain
of obligations for
the U.S.
government. As Williams
says, "The fiscal 2005
statement shows that
total
federal obligations at
the end of September were
$51 trillion; over
four
times the level of GDP."
These debts are
unsustainable. The bills
must go
unpaid. If the U.S.
government were a
private corporation, its
bankruptcy
would be beyond dispute.
This is why Social
Security and Medicare
are not going to exist in
the
not-too-distant future.
As Williams says, "There
is no way the
government
can pay the Social
Security or Medicare it
has committed to."
Williams believes GDP is
contracting now. The
government reported
only a
1.1% increase in the
fourth quarter. Even in
an election year, and
despite
the government's best
efforts to paint a
pretty face, all it could
muster
was a measly 1.1%. More
likely, the economy
actually contracted 2%
in the
fourth quarter. This
means we are in a
recession NOW.
This is not conspiracy-
theory stuff. As
Williams points out,
it's all
disclosed in the
footnotes in the
government's reports.
All he is
doing is
backing out many of the
changes to more
realistically compare
these
numbers with the numbers
of the past.
The great H.L. Mencken,
a scathing attack dog of
idiocy in all its
forms,
wrote about "damning
politicians up hill and
down dale for many
years as
rogues and vagabonds,
frauds and scoundrels."
We need more Menckens.
In
the meantime, we'll have
to make do with Williams
and his cogent
analysis
of government
skulduggery.
Oddly enough, these
insights do not change
our approach here in the
pages
of Capital & Crisis. In
fact, Williams' work
reinforces several
things
we've already covered in
past letters. To wit:
Yields on real estate
investment trusts (REITs)
and utilities - to
say
nothing about the bond
market - appear even
more pathetic against an
inflation rate of 7%.
The yield for risks
taken is simply not
adequate. If
the slumbering bond
market awoke to the
reality of a 7% inflation
rate,
there would be a sell-
off the likes of which
this country has never
seen.
Interest rates would
bolt upward like a
frightened cat.
And the U.S. dollar is a
doomed currency over the
long haul.
Bernanke, the
self-professed student
of the Great Depression,
accepts the
mainstream
view that the Fed's
great mistake then was
not to flood the system
with
dollars. He won't make
that "mistake" again.
Expect the printing
presses
to run day and night at
full capacity when the
trouble starts.
Trying to pin down the
economy in precise
numbers is futile anyway.
It's
too big, too complex.
All macro statistics are
severely flawed. This
is
why I seldom write about
them. Investing using
macro statistics is
like
trying to find the
nearest post office with
a globe. They are so
vague as
to be useless.
The basic idea I want to
leave you with is this:
The economy is far
weaker
than generally portrayed.
Most investors ignore
the rat's nest of
risks
and invest
indiscriminately in
stocks - without proper
due
diligence. As
investors, we need to
stick to our
fundamentals more
carefully than
ever.
Regards,
Chris Mayer
for The Daily Reckoning
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I took a trip to Florida a
few years back for a
family event. It was very
lean times for me as
this was soon after my
business was ruined in
an employee lawsuit
and I was still reeling
from the effects
blindness and hip
surgery. Anyway, I left
my Southbeach hotel
looking for cheaper
digs in less tony places
nearby. What I saw
saddened me.
Thousands of really old
poor jewish folks mostly
widows living in horrid
little moldy cubbyholes
in poorly maintained,
moldy old highrises
without, for most , even
the benefit of air
conditioning. It was so
sad the I was ready to
call Nancy and tell her
to work to raise Social
Security.
The point is that these
folks, without even
knowing it, were ruined
by the endless inflation
and unenemplyment
that robbed them or
thier late husbands of
opportunity and the
ability to save and keep
thier savings. The result
is nothing but cruel.
Steve Dekorte will be
putting on my website
a calculator for the
reader to see how
easy, when there is no
inflation, to save for old
age and have a really
nice income. Not only
were these people
robbed by economic
instability in much of
thier working years,
including the
depression from 1966
to 1982, but they have
been robbed by
incessant accelerating
inflation, and taxes on
thier savings and
earnings and
investments all the way
along, not to mention
the social security tax
and a steadily decling
inflation adjusted so
called Social Security
payment The point I
want to make to the
poor voters of San
Francisco is that the
system is an absolute
rip off. The money has
been stolen to pay for
war, fat cat pork,
government
contractors, and
bureaucrats, leaving
little for the seniors.
And Nancy Pelosi is
proud that she has no
plan for social Security.
The most important
thing to do is to end
inflation.
then look at the magic
of Steve's calculator of
how a little savings can
avoid misery for
millions. Once people
have some economic
stability under thier for
a few years, then they
may be receptive to
considering ways to
end the Social Security
tax. In the mean time
the tax has got to be
cut to pay as you go
levels because they
spend every extra cent
they can get thier
hands on war and
cops and Ms. Pelosi is
the only
congressperson in the
bay area who votes for
the war appropriations.