Cheers Darryl for seeing through the Keynesian facade and the accompanying BS media articles pushing their fallacious theories:
If we were to use the same methodology for calculating inflation that we used in 1980, it would show inflation today to be at 10% rate. We have simply modeled inflation away through the likes of “Hedonics” (my computer is ten time more powerful than it was ten years ago so it is deemed to have dropped in price by 90%) and “substitution” (the price of steak and chicken double in price but steak eaters will switch to eating chicken and therefore the price of their basket of goods has not gone up). Policy makers have many incentives for understating inflation. It reduces the amount of inflation adjustments to entitlement programs. It allows then to provide the illusion of real growth when that growth is really nothing more than inflation (a 10% inflation rate would turn our real growth of 4% for the last quarter into a contraction of 4%). It allows the central bank to keep interest rates low so that the government (and all other borrowers) can borrow at negative real interest rates (they get paid to borrow). The low interest rates also push up asset prices proving the ephemeral “wealth effect” (spending power over and above what their incomes alone could support). They started this back in the 1990’s with tech stock bubble followed up with the housing bubble, and have since moved to the current everything bubble. We are now addicted to asset bubbles, because if they ever go way, our consumption and investment will once again be limited to our income alone – and level is WELL below where are now.
We are destroying the purchasing power of the masses. Those who the vast majority of the assets (top 10% maybe even top 1%) are offsetting that with massive wealth appreciation. The bottom 90% are probably much worse off. We are living in world where we should be experiencing massive deflation due to technology, automation, and efficiency improvements. Had central banks allowed that deflation to occur, the purchasing power of income would have been soaring over the last 30 years.
Using our current methodology for inflation, the purchasing power has declined by 33% over the past 20 years. Using the 1980 methodology, it has declined by more than 80%. If central banks had not been forcing inflation in a deflationary world, the purchasing power would have probably more than doubled due to declines the prices of goods and services.
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Check out all the other articles leading up to the inevitable upcoming financial crisis.