The Stagflation: It's Heeeerrre

[boedicca]

I hate to say I told you so, but I told you so.

4th quarter GDP was negative...and we have high (unreported) inflation for food combined with an increased tax burden on working Americans.

The Stagflation is Heeerre! Welcome back Carter!

And just to make sure it lasts, our government is conforming to Einstein's definition of insanity.

The U.S. economy posted a stunning drop of 0.1 percent in the fourth quarter, defying expectations for slow growth and possibly providing incentive for more Federal Reserve stimulus.

The economy shrank from October through December for the first time since the recession ended, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles.

The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That's a sharp slowdown from the 3.1 percent growth rate in the July-September quarter....

GDP Shows Surprise Drop for U.S. in Fourth Quarter

 

[Mr. H.]

The Dow seems unphased by the news.

 

[Paulie]

The Dow seems unphased by the news.

It won't be phased until the Fed starts raising rates. Right now the money flows freely like wine, and companies have mastered the art of streamlining and are turning record profits in a demand starved economy.

There's zero reason for the stock market to do poorly right now. It's completely disconnected from the regular economy.

 

[pinqy]

I hate to say I told you so, but I told you so.

4th quarter GDP was negative...and we have high (unreported) inflation for food combined with an increased tax burden on working Americans.

Ah, is that how it works? The reported change in food prices was 2.6% 2011-2012, (Dec 2011-Dec 2012 was 1.8%) but you have some mysteriously high unreported rate (and if it's unreported how do you know it?) which you won't actually say what it is.

Last I checked, 2.6% annual change wasn't particularly high, and all items (which contrary to what idiots claim does include food and energy) is was 2.1% annual change 2011 -2012 and 1.7% Dec 2011 to Dec 2012 and averaged 0.13% a month for 2012.

For Obama's First Term, the CPI All Items increased 9% and Food increased 7.6%
During Carter's Term, CPI all items increased 47.2% and Food increased 45.6%

You're seriously saying they're comparable?

 

[ogibillm]

consumer spending increased 2.2% in the 4th quarter

on the other hand there was a 22% decrease in defense spending

i'm not concerned

 

[Katzndogz]

Consumer spending didn't rise because people are buying more stuff. It's because they stuff they are buying is more expensive.

 

[ogibillm]

Consumer spending didn't rise because people are buying more stuff. It's because they stuff they are buying is more expensive.

really? link?

 

[Paulie]

I hate to say I told you so, but I told you so.

4th quarter GDP was negative...and we have high (unreported) inflation for food combined with an increased tax burden on working Americans.

Ah, is that how it works? The reported change in food prices was 2.6% 2011-2012, (Dec 2011-Dec 2012 was 1.8%) but you have some mysteriously high unreported rate (and if it's unreported how do you know it?) which you won't actually say what it is.

Last I checked, 2.6% annual change wasn't particularly high, and all items (which contrary to what idiots claim does include food and energy) is was 2.1% annual change 2011 -2012 and 1.7% Dec 2011 to Dec 2012 and averaged 0.13% a month for 2012.

For Obama's First Term, the CPI All Items increased 9% and Food increased 7.6%
During Carter's Term, CPI all items increased 47.2% and Food increased 45.6%

You're seriously saying they're comparable?

When we say "unreported" we mean the media tends to report the core CPI to the masses and really only gets technical and detailed in the reporting on the financial channels where only people who already understand those stats are tuned in.

When Lester Holt breaks down the CPI for us on NBC Nightly News, I might be impressed.

 

[Paulie]

I hate to say I told you so, but I told you so.

4th quarter GDP was negative...and we have high (unreported) inflation for food combined with an increased tax burden on working Americans.

Ah, is that how it works? The reported change in food prices was 2.6% 2011-2012, (Dec 2011-Dec 2012 was 1.8%) but you have some mysteriously high unreported rate (and if it's unreported how do you know it?) which you won't actually say what it is.

Last I checked, 2.6% annual change wasn't particularly high, and all items (which contrary to what idiots claim does include food and energy) is was 2.1% annual change 2011 -2012 and 1.7% Dec 2011 to Dec 2012 and averaged 0.13% a month for 2012.

For Obama's First Term, the CPI All Items increased 9% and Food increased 7.6%
During Carter's Term, CPI all items increased 47.2% and Food increased 45.6%

You're seriously saying they're comparable?

Do you think maybe some of the differences in CPI between Carter and Obama have to do with so much more diversity in substitution choices nowadays? I ask because these days we have all kinds of cheap alternatives to products, which may or may not be good depending on the quality of the cheaper subtitute. If everyone's buying the cheaper substitutes and that's contributing to a lower CPI, that's not exactly a good thing if those cheaper substitutes aren't of satisfactory quality...with foods particularly, that means people are eating much less healthy for sure and there's all kinds of consequences to that.

 

[pinqy]

I hate to say I told you so, but I told you so.

4th quarter GDP was negative...and we have high (unreported) inflation for food combined with an increased tax burden on working Americans.

Ah, is that how it works? The reported change in food prices was 2.6% 2011-2012, (Dec 2011-Dec 2012 was 1.8%) but you have some mysteriously high unreported rate (and if it's unreported how do you know it?) which you won't actually say what it is.

Last I checked, 2.6% annual change wasn't particularly high, and all items (which contrary to what idiots claim does include food and energy) is was 2.1% annual change 2011 -2012 and 1.7% Dec 2011 to Dec 2012 and averaged 0.13% a month for 2012.

For Obama's First Term, the CPI All Items increased 9% and Food increased 7.6%
During Carter's Term, CPI all items increased 47.2% and Food increased 45.6%

You're seriously saying they're comparable?

When we say "unreported" we mean the media tends to report the core CPI to the masses and really only gets technical and detailed in the reporting on the financial channels where only people who already understand those stats are tuned in.

No, the headline number reported is almost always the All Items CPI-U and then the Core CPI is mentioned as a secondary number...and the core number is always reported as core.

 

[pinqy]

I hate to say I told you so, but I told you so.

4th quarter GDP was negative...and we have high (unreported) inflation for food combined with an increased tax burden on working Americans.

Ah, is that how it works? The reported change in food prices was 2.6% 2011-2012, (Dec 2011-Dec 2012 was 1.8%) but you have some mysteriously high unreported rate (and if it's unreported how do you know it?) which you won't actually say what it is.

Last I checked, 2.6% annual change wasn't particularly high, and all items (which contrary to what idiots claim does include food and energy) is was 2.1% annual change 2011 -2012 and 1.7% Dec 2011 to Dec 2012 and averaged 0.13% a month for 2012.

For Obama's First Term, the CPI All Items increased 9% and Food increased 7.6%
During Carter's Term, CPI all items increased 47.2% and Food increased 45.6%

You're seriously saying they're comparable?

Do you think maybe some of the differences in CPI between Carter and Obama have to do with so much more diversity in substitution choices nowadays?

No.

I ask because these days we have all kinds of cheap alternatives to products, which may or may not be good depending on the quality of the cheaper subtitute. If everyone's buying the cheaper substitutes and that's contributing to a lower CPI,

But it wouldn't. The assumption of the CPI is a constant standard of living. In most cases that'll mean the consumer buying more of the cheaper item to stay along the same demand curve.

with foods particularly, that means people are eating much less healthy for sure and there's all kinds of consequences to that.

That's not a function of the CPI.

 

[Cassandro]

Just check Japan's economy since 1990. We are in the same situation and are following the same government policies.

http://www.gold-eagle.com/gold_digest_02/powell120602.html

 

[boedicca]

The Dow seems unphased by the news.

The Dow, which is comprised of VV HUGE companies, is expecting more QE from the Bernanke. The increase in the money supply means more inflationary pressure on stock prices. With interest rates so low, stocks are an inflationary move for storing money...until the market crashes due to government insolvency.

 

[boedicca]

I hate to say I told you so, but I told you so.

4th quarter GDP was negative...and we have high (unreported) inflation for food combined with an increased tax burden on working Americans.

Ah, is that how it works? The reported change in food prices was 2.6% 2011-2012, (Dec 2011-Dec 2012 was 1.8%) but you have some mysteriously high unreported rate (and if it's unreported how do you know it?) which you won't actually say what it is.

Last I checked, 2.6% annual change wasn't particularly high, and all items (which contrary to what idiots claim does include food and energy) is was 2.1% annual change 2011 -2012 and 1.7% Dec 2011 to Dec 2012 and averaged 0.13% a month for 2012.

For Obama's First Term, the CPI All Items increased 9% and Food increased 7.6%
During Carter's Term, CPI all items increased 47.2% and Food increased 45.6%

You're seriously saying they're comparable?

That's great. CPI increased by 9% while wages have declined.

Also, the CPI understates inflation. It uses a substitution approach. If beef is expensive, then one is expected to substitute a cheaper protein source - hence the basket price is understated.

 

[boedicca]

I hate to say I told you so, but I told you so.

4th quarter GDP was negative...and we have high (unreported) inflation for food combined with an increased tax burden on working Americans.

Ah, is that how it works? The reported change in food prices was 2.6% 2011-2012, (Dec 2011-Dec 2012 was 1.8%) but you have some mysteriously high unreported rate (and if it's unreported how do you know it?) which you won't actually say what it is.

Last I checked, 2.6% annual change wasn't particularly high, and all items (which contrary to what idiots claim does include food and energy) is was 2.1% annual change 2011 -2012 and 1.7% Dec 2011 to Dec 2012 and averaged 0.13% a month for 2012.

For Obama's First Term, the CPI All Items increased 9% and Food increased 7.6%
During Carter's Term, CPI all items increased 47.2% and Food increased 45.6%

You're seriously saying they're comparable?

Do you think maybe some of the differences in CPI between Carter and Obama have to do with so much more diversity in substitution choices nowadays? I ask because these days we have all kinds of cheap alternatives to products, which may or may not be good depending on the quality of the cheaper subtitute. If everyone's buying the cheaper substitutes and that's contributing to a lower CPI, that's not exactly a good thing if those cheaper substitutes aren't of satisfactory quality...with foods particularly, that means people are eating much less healthy for sure and there's all kinds of consequences to that.

When I want a steak, tofurky just doesn't cut it.

 

[SteadyMercury]

That's great. CPI increased by 9% while wages have declined.

9% over four years is very low inflation, if you predicted high inflation then you were flat our wrong.

 

[pinqy]

I hate to say I told you so, but I told you so.

4th quarter GDP was negative...and we have high (unreported) inflation for food combined with an increased tax burden on working Americans.

Ah, is that how it works? The reported change in food prices was 2.6% 2011-2012, (Dec 2011-Dec 2012 was 1.8%) but you have some mysteriously high unreported rate (and if it's unreported how do you know it?) which you won't actually say what it is.

Last I checked, 2.6% annual change wasn't particularly high, and all items (which contrary to what idiots claim does include food and energy) is was 2.1% annual change 2011 -2012 and 1.7% Dec 2011 to Dec 2012 and averaged 0.13% a month for 2012.

For Obama's First Term, the CPI All Items increased 9% and Food increased 7.6%
During Carter's Term, CPI all items increased 47.2% and Food increased 45.6%

You're seriously saying they're comparable?

That's great. CPI increased by 9% while wages have declined.

Incorrect.
Change in Nominal Weekly wages of all employees Jan 2009=Dec 2012 was 9%, Change in All Items CPI was 9%. To be a little more accurate, weekly wages increased 8.98% and inflation icreased 8.97%. Real wages increased 0.01% In other words wages are back up to Jan 2009 levels. They were higher in June 2009, but took a steep dive in September.

Also, the CPI understates inflation.

Earlier versions overstated inflation. Current probably overstates it some too. There's all kinds of academic debate over the best approach.

It uses a substitution approach.

No it doesn't, which is why a chained CPI is being considered for COLA changes as it does use a substitution approach. Current methodology uses a geometric mean index at the base item level, and then a LaSpeyres index for the higher levels. The LaSpeyres assumes no substitution, which means it gives the upper bound of change, while the geo-means index gives a preference to goods that don't change as much, assuming substitution occurs.

If beef is expensive, then one is expected to substitute a cheaper protein source - hence the basket price is understated.

Not quite. If A and B are two different cuts of steak and A increases 10% and B increases 3%, it can reasonably be assumed that the consumer will buy less A and more B. It doesn't matter which is more expensive....Normally I buy more Flank Steak and Round Steak than Ribeye. But if Ribeye goes on sale, I'm buying more Ribeye and less of the other two. And the reverse is true as well. That's substitution and the CPI needs to reflect that.

And remember, the substitution is assumed to be to maintain THE SAME STANDARD OF LIVING.

Easy example from Addressing misconceptions about the Consumer Price Index
The item category is "candy bars."
Consumer buys 2 chocolate bars at $1/ea and 2 peanut bars at $1/ea. Total expenditure: $4
Major disaster in South America, and chocolate prices skyrocket so that chocolate bars are now $4/ea.
So what would Consumer do to maintain the same standard of living?
If she were completely indifferent between chocalate and peanut, she'd just buy 4 peanut bars a week and have no change in cost. That is not a reasonable assumption.
Is she had a strict preference for chocolate, she'd change nothing and still buy 2 of each.

She will NOT buy more chocolate, she will NOT lower the number of candy bars (that would be a lowering of the standard of living).

A LaSpeyres Index assumes no substitution and that Consumer will still buy 2 of each for a change of 250% (new cost $10) That's the upper bound. She won't buy more than 2 chocolate nor add more peanut bars without dropping chocolate. But is it reasonable that she would just continue to buy exactly the same of each candy bar when chocolate has quadrupled in price?

A geo-means index assumes some substitution and shows a change of 200% (cost of $8)
This could be represented by Consumer buying 4 peanut bars and 1 chocolate bar. So she's substituting 2 more peanut bars for losing 1 chocolate bar.

You're claiming that that's not reasonable and that she's worse of with 5 candy bars than 4. I'm saying she's just as well off as she did buy less of what she prefers but made up for it by having more candy overall.

 

[boedicca]

That's great. CPI increased by 9% while wages have declined.

9% over four years is very low inflation, if you predicted high inflation then you were flat our wrong.

Just wait until the Chinese insist on a proper interest rate to roll over the debt.

Also, CPI significantly understates real inflation.

Based on the 1980 methodology, we're actually running closer to 10% inflation right now.

Alternate Inflation Charts

 

[boedicca]

And note to Pinqy: the 9% cumulative CPI rate pins the bogometer.

 

[pinqy]

That's great. CPI increased by 9% while wages have declined.

9% over four years is very low inflation, if you predicted high inflation then you were flat our wrong.

Just wait until the Chinese insist on a proper interest rate to roll over the debt.

Also, CPI significantly understates real inflation.

Ok, explain the differences and why you claim it understates. Details, now, now, not your usual empty assertions.

Based on the 1980 methodology, we're actually running closer to 10% inflation right now.

Alternate Inflation Charts

You realize no one has ever managed to duplicate Williams' numbers, right? He doesn't reveal his methodology and he cannot actually be using the old methodology because he wouldn't be able to get the raw data. The best anyone can figure out is that he's just tacking on an arbitrary amount