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Tag Archives: deflation
Manipulating the Consumer Price Index: Hedonic Quality Adjustments | The Consumer Price Illusion
Manipulating the Consumer Price Index: Hedonic Quality Adjustments | The Consumer Price Illusion.
Have you heard the one about CPI?
Suppose that a TV manufacturer retires a product and replaces it with a newer, better, and much more expensive one. If the new TV costs 5 times more than the old one, how can we manipulate the hell out of massage the price of the old TV to make it look like the price fell? By using the dark arts of econometrics, my son!
If you believe the public comments made by the world’s central bankers, the prices that consumers pay for items are not rising fast enough; in some places like Europe they worry that prices might actually fall (a tragedy for the possessing classes, as their manic one-way long bets might not work then).Central bankers are terrified of this outcome. Setting aside for a second the apparent insanity of this logic for your average consumer, who experiences price rises on a near continuous basis, let’s examine in detail one of the jokes gauges economists use for measuring prices: the Consumer Price Index (CPI).
Ostensibly, the CPI is a linear combination of the “prices” of things/stuff consumers could actually purchase weighted by a percentage that the “ideal consumer” spends on any particular stuff/thing in his “ideal” basket. The main problem here is that the “prices” used are not the prices a consumer would actually pay; instead the real price for an item is scaled by what the BLS calls a “Hedonic Quality Adjustment (HQA)”. The HQA was designed to solve a real world problem economists face: the market keeps pumping out new and better devices. In practice the HQA is used to artificially depress the prices used in the calculation of the CPI.
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Gold, Yen, Central Banks and the Endgame | SurlyTrader
Gold, Yen, Central Banks and the Endgame | SurlyTrader.
Japan is frantically trying to stop its deflationary trap and its immense debt burden. The population is aging and prospects look dire. On Halloween (great timing) the Bank of Japan threw the kitchen sink at the problem by announcing that they would increase their QE from ¥60-70 trillion, to ¥80 trillion ($700 B) and would increase its purchases of ETF and REIT’s. In addition, Japan’s $US1.2 trillion Government Pension Investment Fund will dramatically rebalance its portfolio away from bonds. These actions have depreciated the Yen versus the dollar by about 5% since the announcement and have created about an 8% jump in the Nikkei. If you extend the time period to the summer, the Yen is down about 13% while the Nikkei is up about 10%.
If you are a Japanese citizen, you have lost a significant amount of purchasing power unless you own a bunch of stocks (which they don’t). Going back to 2012, the loss is over 30%:
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Can’t Find Any Inflation? Here’s A Place To Start | Zero Hedge
Can’t Find Any Inflation? Here’s A Place To Start | Zero Hedge.
Lately, there has been much anguished consternation, especially among the tenured US economics professors (primarily those who make 6-digits or more per year) and of course, the Federal Reserve where as we revealed last week, at least 113 government workers make $250,000 (excluding bonuses) and thus all are confined within the cozy cocoon of America’s “1%ers”, about the so-called complete disappearance and collapse in inflation. So to help these ivory tower-confined individuals in their holy grail to rediscover the inflation that is more than felt by the rest of America, here are two simple charts.
The Scariest Number Revealed Today: $1.114 Trillion In Eurozone Bad Debt | Zero Hedge
The Scariest Number Revealed Today: $1.114 Trillion In Eurozone Bad Debt | Zero Hedge.
As we previously reported, the ECB’s latest stress test was once again patently flawed from the start. Why? Because as we noted earlier, in its most draconian, “adverse” scenario, the ECB simply refused to contemplate the possibility of deflation. And here’s why. Buried deep in the report, on page 75 of 178, is the following revelation which contains in it the scariest number presented to the public today.
Due to the fact that on average banks’ internal definitions were less conservative than the simplified EBA approach, the application of the simplified approach led to an increase in NPE stock of €54.6 billion from €743.1 billion to €797.7 billion. The CFR and the projection of findings led to an additional increase in NPE of €81.3 billion, resulting in a total increase €135.9 billion to €879.1 billion of post-CFR NPEs across the participating banks as a result of the AQR. The impact of the application of the EBA simplified approach and the credit file review on the stock of NPEs varied amongst debtor geographies, with overall increases among SSM debtor geographies ranging from 7% to 116%.
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