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If a formula spits out a number you don’t like, just change the formula so you get a better number!

That’s exactly what the Bureau of Labor Statistics did to the Consumer Price Index formula in the 1990s. Because the CPI kept indicating price inflation was too high, the BLS tweaked the formula to spit out a lower inflation number.

Now the International Swaps and Derivatives Association (ISDA) is trying to talk the Federal Reserve into changing the formula for the supplementary leverage ratio (SLR) to make bank balance sheets look better.

This proposal sends some alarming messages about the stability of the banking system and confidence in U.S. government debt.

What Is the SLR and Why Do They Want to Change It?

The SLR is calculated by dividing the bank’s tier 1 capital (capital held in a bank’s reserves and used to fund business activities for the bank’s clients) by all assets on the bank’s balance sheet, including U.S. Treasuries and deposits at Federal Reserve Banks.

Banks use the SLR to calculate the amount of equity capital they must hold relative to their total leverage exposure. Regulations imposed after the 2008 financial crisis require category I, II, and III banks to maintain an SLR of 3 percent. “Globally Systemically Important Banks” are required to keep an extra 2 percent SLR buffer.

During the pandemic, the Fed temporarily altered SLR requirements, allowing banks to exclude Treasuries and reserves from the formula’s denominator. This made it easier to maintain the required SLR ratio.

As a Federal Reserve note explained, the banking system “exhibited considerable strains” during the reign of COVID-19. As the pandemic unfolded and governments began shutting down economies, banks quickly liquidated risky assets and increased their cash holdings. This resulted in a “sharp increase in bank deposits.”

…click on the above link to read the rest of the article…

It Has Been 7% Inflation Since 1996

January 16, 2022

It Has Been 7% Inflation Since 1996

And so finally, now fiat $USD financial authorities are being forced to admit we have at a minimum 7% price inflation annualized.

The issue, as per usual, is the real value loss truth is like twice that amount in terms of real purchasing power disappearances over the last twelve months.

To attain shreds of credibility, even some in the mainstream financial media now have to report how rigged the Bureau of Labor and Statistics (BLS) inflation tracking methodology is.

Of course, yet another deflationary global bankruptcy phase is likely to come about this decade.

Look for perhaps some cyber-attack excuse to cover yet more derivative bet loss insolvencies to come.

And when it does, it will likely turn these increasing-price inflationary pressure downwards for a brief timeframe as it did during the 2008 GFC and briefly, and too at the start of the 2020 pandemic.

Yet our financial authority’s most predictable response mechanism will likely be more seemingly ∞fiat currency∞ creation.

Ultimately and also by major central banks’ pre-meditated ‘Go Direct‘ actions. Secular inflation should remain persistent, reaching levels already now larger than perhaps ever before experienced in most of our lifetimes until significant structural issues of too much record-level fiat currency-denominated debt and unsaved promise piles get reckoned.

Over 7% Inflation Since 1996

The CPI Revisited And Its Failure To Reflect True Inflation

May 24, 2021

The CPI Revisited And Its Failure To Reflect True Inflation

The cost of living numbers prepared by the Bureau of Labor Statistics are highly misleading. Currently, the government understates inflation by using a formula based on the concept of a “constant level of satisfaction” that evolved during the first half of the 20th century in academia. This extended into the BLS re-weightings sales outlets such as discount or mass merchandisers with Main Street shops. Those promoting this change claimed it was simply another way to measure inflation and it still reflected the true cost of living.

The fact is, politicians and those behind this system created it as a way to reduce the cost of living adjustments for government payments to Social Security recipients, etc. By moving to a substitution-based index and weakening other constant-standard-of-living ties those reporting inflation have muddied the water as to just how much we are being impacted by inflation. The general argument used to promote this change was that changing relative costs of goods results in consumers substituting less-expensive goods for more expensive goods.

Allowing for a substitution of goods within the formerly “fixed-basket” supposedly allows the consumer flexibility in obtaining a “constant level of satisfaction.” This adjustment to the inflation measure was touted as more appropriate for the GDP concept in measuring shifting demand and weighting actual consumption. Other tricks were also used to give the illusion of less inflation. In cases where the quality of the product are deemed by the government to be “improved” prices in the CPI, calculations are now adjusted lower to offset the higher quality. Extending this idea the Baskin Commission Report, December 4, 1996, actually used steak and chicken for its substitution example.

…click on the above link to read the rest of the article…

No, Autos Are Not “Cheaper Now”

June 30, 2019

No, Autos Are Not “Cheaper Now”

According to the BLS, inflation in the category of “New Vehicles” has been practically non-existent the past 21 years.

Longtime readers know I’ve long turned a skeptical gaze at official calculations of inflation, offering real-world analyses such as The Burrito Index: Consumer Prices Have Soared 160% Since 2001 (August 1, 2016) and Burrito Index Update: Burrito Cost Triples, Official Inflation Up 43% from 2001 (May 31, 2018).

Official claims that grossly understate real-world inflation is a core feature of debt-serfdom and neofeudalism: we’re working harder and longer and getting less for our earnings every year, but this reality is obfuscated by official pronouncements that inflation is 2%–barely above zero.

Meanwhile, quality and quantity are in permanent decline. New BBQ grills rust out in a few years, if not months, appliance paint is so thin a sponge and a bit of cleanser removes the micron-thick coating, and on and on in endless examples of the landfill economy, as new products are soon dumped in the landfill due to near-zero quality control and/or planned obsolescence.

Free-lance writer Bill Rice, Jr. recently analyzed shrinkflation, the inexorable reduction in quantity:

What Does Your Toilet Paper Have to Do With Inflation?

Manufacturers have been engaging in “shrinkflation,” leaving consumers paying more for less, but stealthily.In the guest post below, Bill looks at new car prices, and finds that official inflation for “new vehicles” from November 1983 to November 2013 measured only 43.8 percent… while actual car inflation (based on archived price records in Morris County, NJ) is 4.85 times higher than official CPI “new vehicle” inflation.

Prices for new cars sky-rocketed over 30 years (or did they?)

A lesson in ‘hedonic adjustments’

…click on the above link to read the rest of the article…

Amid Market Rout, Decade of “Financial Repression” Ends, Capital Preservation Suddenly is a Thing

October 12, 2018

Amid Market Rout, Decade of “Financial Repression” Ends, Capital Preservation Suddenly is a Thing

This will dog the stock market going forward.

Fixed-income investors – a financially conservative bunch buying Treasury securities, FDIC-insured CDs, and similar products that largely eliminate risk – have been getting crushed for a decade: Except for brief periods when inflation dipped to near zero or below zero, their minuscule returns have been eaten up by inflation, or worse, they lost money after inflation, as was the case with shorter-term Treasuries and just about all savings products. But it has ended.

The Consumer Price Index (CPI) rose 2.3% in September (2.27%), compared to September a year ago, the Bureau of Labor Statistics reported this morning. This was down from the 2.9% increase in July. These numbers are volatile, but the trend is pretty clear: Outside of the Oil Bust and a few quarters during the Financial Crisis, inflation is a fixture in the US economy:

The CPI without food and energy – “core CPI” – rose 2.2% in September. Cost of shelter rose 3.3%. Cost of transportation services rose 4.0%. So prices are going up as measured by CPI.

What has changed is that interest rates and yields are also going up, and they’re now higher than inflation as measured by CPI across nearly the entire spectrum of US Treasury securities – and if you shop around, across many CDs too.

This ends a decade of “financial repression” — a condition when the Fed repressed interest rates below the rate of inflation.

The chart below shows the US Treasury yield curve across the maturity spectrum, from 1-month to 30 years, at the close yesterday. The 1-month yield, at 2.18%, was the only yield still below the rate of inflation. The 3-month yield at 2.27% is right on top of CPI (green line). Every Treasury security with a maturity longer than three months is beating inflation.

…click on the above link to read the rest of the article…

Americans Live In A World Of Lies

August 6, 2018

Americans Live In A World Of Lies

The US government and the presstitutes that serve it continue to lie to us about everything. Today the Bureau of Labor Statistics told us that the unemployment rate was 3.9%. How can this be when the BLS also reports that the labor force participation rate has declined for a decade throughout the length of the alleged economic recovery and there is no upward pressure on wages from full employment. When jobs are plentiful, people enter the labor force to take advantage of the work opportunities. This raises the labor force participation rate. When employment is full—which is what a 3.9% unempoyment rate means—wages are bid up as employers compete for scarce labor. Full employment with no wage pressure and no rise in the labor force participation rate is impossible.

The 3.9% unemployment rate is not due to employment. It results from not counting discouraged workers who have ceased to search for jobs because there are no jobs to be had. If an unemployed person is not actively searching for a job, he is not counted as being in the labor force. The way the unemployment rate is measured makes it a hoax.

The government tells us that there is essentially no inflation despite the fact that prices have been rising strongly—the price of food, the price of home repairs, the price of drugs, the price of almost everything. Two years ago the American Association of Retired People’s Public Policy Institute reported that the average retail drug price has been increasing “at a worrying pace of 10 percent a year, and about 20 drugs have astoundingly had their prices quadruple since just December. Sixty drugs doubled over the same period. Turing Pharmaceuticals, headed by Martin Shkreli, is one of the most pronounced examples of this kind of behavior.

…click on the above link to read the rest of the article…

America’s Debt Dependence Makes It An Easy Economic Target

June 20, 2018

America’s Debt Dependence Makes It An Easy Economic Target

There is a classic denial tactic that many people use when confronted with negative facts about a subject they have a personal attachment to; I would call it “deferral denial” — or a psychological postponing of reality.

For example, point out the fundamentals on the U.S. economy such as the fact that unemployment is not below 4% as official numbers suggest, but actually closer to 20% when you factor in U-6 measurements including the record 96 million people not counted because they have run out of unemployment benefits. Or point out that true consumer inflation in the U.S. is not around 3% as the Federal Reserve and the Bureau of Labor Statistics claims, but closer to 10% according to the way CPI used to be calculated before the government started rigging the numbers. For a large part of the public including a lot of economic analysts, there is perhaps a momentary acceptance of the danger, but then an immediate deferral — “Well, maybe things will get worse down the road, 10 or 20 years from now, but it’s not that bad today…”

This is cognitive dissonance at its finest. The economy is in steep decline now, but the mind in denial says “it could be worse,” and this is how you get entire populations caught completely off guard by a financial crash. They could have easily seen the signs, but they desperately wanted to believe that all bad things happen in some illusory future, not today.

There is also another denial tactic I see often in the world of politics and economics, which is what I call “paying it backward.” This is what people do when they have a biased attachment to a person or institution and refuse to see the terrible implications of their actions.

…click on the above link to read the rest of the article…

The Dollar’s Purchasing Power Drops 2.9% in May from Year Ago, Fastest Drop since Nov 2011

June 13, 2018

The Dollar’s Purchasing Power Drops 2.9% in May from Year Ago, Fastest Drop since Nov 2011

Even as “hedonic quality adjustments” perform miracles to repress surging new and used vehicle inflation.

Consumer price inflation, as measured by the Consumer Price Index, released this morning by the Bureau of Labor Statistics, jumped by 2.8% in May from a year ago, after having already jumped by 2.5% in April. It was the fastest year-over-year rise since February 2012:

Inflation is just a nice way of saying that the dollar is losing its purchasing power, and that income earned in dollars is buying less and less, an experience consumers go through when they buy stuff. The purchasing power of the dollar dropped 2.93% in May from a year ago, the fastest drop since November 2011. The chart below shows the index of the dollar’s swooning purchasing power:

The CPI without food and energy rose 2.24% from a year ago, after having already risen 2.14% in April.

These year-over-year percentage changes in the Consumer Price Index are slower than what consumers experience in terms of actual price increases. Here are two big examples of how this discrepancy is happening: prices of used vehicles and new vehicles.

The CPI for used cars and trucks fell 1.7% in May from a year ago (not seasonally adjusted), according to the BLS. This index has been falling much of the time during the last decade with exception of the “Cash for Clunkers” period and its consequences, which took a whole generation of often perfectly good older cars off the road, and thus actually raised prices on what was left (the spike in this chart from 2010-2012):

The chart below shows the actual index of used car- and truck-price inflation over the decades. Note that this CPI for used vehicles in May is at the same level as in 1994:

…click on the above link to read the rest of the article…

The Real Inflation Rate May Signal That the U.S. Economy is in a Death Spiral

May 3, 2018

The Real Inflation Rate May Signal That the U.S. Economy is in a Death Spiral

real inflation us economy collapse

Just like a car with a bad cooling system, the U.S. economy may be overheating, and could break down soon. Why?

Aside from trade wars, geopolitical tension, and debt, inflation might stand center-stage as the final nail in the U.S. economic “coffin”.

According to Torsten Slok, the Chief International Economist at Deutsche Bank, inflation “is the mother of all risks here”.

You see, the floundering U.S. dollar, tight labor market, Quantitative Easing and trade wars have all paved the way for rising inflation. And, in a recent survey of global fund managers conducted by Bank of America, 82% expect the CPI index to keep climbing over the next year.

But the “inflation nation” might be overheating, as reported by CNBC:

Earlier this month, inflation numbers came in hotter than anticipated, signaling inflation pressures could be mounting. The Labor Department reported its CPI rose 2.4 percent year on year, its fastest annual pace in 12 months.

Even if you factor out energy and food — factors which the U.S. Government likes to leave out to make the CPI inflation rate more appealing — it’s still 2.1%.

That’s the fastest rise since February 2017, higher than the benchmark of 2%, and still rising. Which begs a serious question…

“What is the real inflation rate?”

The Consumer Price Index (CPI) is a set of methods that track the inflation rate, monitored by the Bureau of Labor and Statistics (BLS). us inflation higher matrix

It was designed to help businesses, individuals and the government adjust for the impact of inflation. It worked well until politicians started messing with the methodology in the 1990’s.

In 2011, John Melloy reported on the “real” inflation rate, calculated with the methodology used before 1980 (bolding ours):

Inflation, using the reporting methodologies in place before 1980, hit an annual rate of 9.6 percent in February, according to the Shadow Government Statistics newsletter.

…click on the above link to read the rest of the article…

Food: What’s In Your Basket? How Fast Are Prices Rising?

January 12, 2018

Food: What’s In Your Basket? How Fast Are Prices Rising?

The BLS says the CPI rose 2.1% in December from a year ago. Food rose 1.6%. I called the BLS and filled in some numbers.

In CPI Up 0.1 Percent: How Much is the CPI Understated? I disputed the BLS’s year-over-year overall inflation figure of 2.1%, specifically citing housing and the cost of health insurance.

I found the reported food increase reasonable, others didn’t. Whether or not you find the food index believable depends on two things.

What you buy
How you shop

Reader AWC pointed out this BLS article from March of 2017: Prices for meats, poultry, fish, and eggs down 7 percent since August 2015 peak.

I downloaded the data and started plugging in numbers for December 2017. The index numbers did not match, so I called the BLS. The person directed me to data downloads which I also found on my own. I still could not match the downloaded numbers.

What happened is the data for the the preceding chart was indexed to 2007 but the main index is to 1982.

I asked the BLS agent for year-over-year increases of items and the percentages matched.

CPI Select Food Items

I calculated all but the last row from the March article after verifying percentages with the BLS. The last row was read to me over the phone.

I created the main graph from the above chart.

How Do You Shop?

Your percentages may vary substantially from the above chart.

Mine are cheaper because I buy items on sale and freeze them. Sale prices fluctuate less than non-sale prices.

Properly wrapped food will last a year or more.

…click on the above link to read the rest of the article…

New President–Same BLS Bullshit

January 6, 2018

NEW PRESIDENT – SAME BLS BULLSHIT

I spent most of Obama’s presidency obliterating the jobs recovery narrative every month, as millions supposedly left the workforce because their financial situation was so wonderful. The bullshit shoveled by the BLS was nothing but manipulated misinformation then and it is still bullshit now. Just because the president is now Trump, doesn’t make the false narrative about a strong jobs recovery now valid. After a disappointing December jobs report, the cackling and tooting of horns might die down a little, but the propaganda peddlers will somehow spin it as a positive. Buy Stocks!!!!

Candidate Trump railed against the fake data put out by the BLS. He railed about the ridiculously low interest rates manufactured by the Fed. He declared the stock market was a bubble ready to burst. That was over 5,000 points ago. As expected, now that he is el presidente, Trump embraces the fake data, low interest rates and the most overvalued stock market in history. He tweets about the great economy and stock market every day. GDP has risen at a scintillating 2.5% pace in 2017. This is up from 2% in the prior two years, driven by people going further into debt to survive or buy shit they don’t need.

The narrative being propagated by the corporate MSM was this was the best holiday retail season in years. Americans were back to spending like drunken sailors. Trump is making America great again, so why not spend money we don’t have using that little piece of plastic. Those future tax savings will more than pay the bill. Except for a couple nagging questions.

…click on the above link to read the rest of the article…

Yellen Was Right: “Transitory” Factors of “Low” Inflation Are Reversing, with Much More to Come

October 13, 2017

Yellen Was Right: “Transitory” Factors of “Low” Inflation Are Reversing, with Much More to Come

What’s Boiling Beneath the Surging Inflation?

Consumers are going to shell out more money for the same stuff, that’s for sure. Inflation as measured by the Consumer Price Index jumped 2.2% in September compared to a year ago, the Bureau of Labor Statistics reported this morning. All fingers pointed at energy costs: the index jumped 10.1% year-over-year. Within it, “motor fuel” prices (gasoline and diesel) jumped 19.2%.

Food prices rose 1.2% year-over-year, kept down by prices for “food at home” – the stuff you buy at the grocery store – which inched up only 0.4% year-over-year in part due to the price war currently tearing into the supermarket sector.

In the chart below of CPI, note the dreadful “Deflation Monster” – one of those rare and brief occasions in the US when the purchasing power of wages actually rose just a tiny bit on a year-over-year basis. It was caused by the energy bust. And it was “transitory”:

In the chart, note how CPI jumped 2.8% in February and then retreated through June. This retreat was brushed off as “transitory” by Fed Chair Janet Yellen and other Fed governors when they vowed to continue raising rates. She had specifically pointed out a few of those “transitory” factors. And they’re now turning around.

One of these factors that Yellen had pointed out was telephone services, which includes the monthly costs that consumers pay for their smartphones. Those costs plunged as a price war among wireless carriers had broken out in 2016. This summer, the price index for telephone services was down around 9% year-over-year. The wireless component plunged as much as 13%. But that consumer bonanza could not last.

…click on the above link to read the rest of the article…

Lies, Lies & OMG More Lies

September 18, 2017

LIES, LIES & OMG MORE LIES

“There are three types of lies — lies, damn lies, and statistics.” – Benjamin Disraeli

Every month the government apparatchiks at the Bureau of Lies and Scams (BLS) dutifully announces inflation is still running below 2%. Janet Yellen then gives a speech where she notes her concern inflation is too low and she needs to keep interest rates near zero to save humanity from the scourge of too low inflation. I don’t know how I could survive without 2% inflation reducing my purchasing power.

This week they reported year over year inflation of 1.9%. Just right to keep Janet from raising rates and keeping the stock market on track for new record highs. According to our beloved bureaucrats, after they have sliced, diced, massaged and manipulated the data, you’ve experienced annual inflation of 2.1% since 2000. If you believe that, I’ve got a great real estate deal for you in North Korea on the border with South Korea.

“Lies sound like facts to those who’ve been conditioned to mis-recognize the truth.” ― DaShanne Stokes

CPI and Core CPI

Ignore that silly Shiller PE ratio far surpassing 1929 and 2007 levels. Ignore every historically accurate valuation method showing the stock market 70% to 129% overvalued. Wall Street shysters like Jamie Dimon, faux financial analysts, corporate media talking heads and even Donald Trump tell you this time is different. Tax cuts, amnesty for illegals, more wars, and eliminating the debt ceiling will surely spur massive economic growth. Trillion dollar deficits are always bullish. Making America Great with More Debt should drive the stock market to 30,000 in no time.

All is well. Real median household income just surpassed the level achieved in 1999. Think about that for a second. It took seventeen years for the average American family to get back to a household income of $59,000.

…click on the above link to read the rest of the article…

Earthquake Economics

January 16, 2016

Earthquake Economics

Beyond Human Capacity

“The United States of America, right now, has the strongest, most durable economy in the world,” said President Obama, in his State of the Union address, on Tuesday night. What performance metrics he based his assertion on is unclear. But we’ll give him the benefit of the doubt.

A collapsed building is seen in Concepcion , Chile, Thursday, March 4, 2010. An 8.8-magnitude earthquake struck central Chile early Saturday, causing widespread damage. (AP Photo/ Natacha Pisarenko) Photo credit: Natacha Pisarenko / AP

Maybe this is so…right now. But it isn’t eternal. For at grade, hidden in plain sight, a braid of positive and negative surface flowers indicate an economic strike-slip fault extends below. What’s more, the economy’s foundation dangerously straddles across it.

1-gdpnow-forecast-evolution Actually, it probably isn’t so – the Atlanta Fed’s GDP Now measure, which has proven surprisingly accurate thus far, indicates that the US economy is hanging by a thread – and the above chart does now yet include the string of horrendous economic data released since January 8.

Something must slip. A massive vertical rupture is coming that will collapse everything within a wide-ranging proximity. It is not a matter of if it will come. But, rather, of when…regardless of what the President says.

Here at the Economic Prism we have no reservations about the U.S. – or world – economy. We see absurdities and inconsistencies. We see instabilities perilously pyramided up, which could rapidly cascade down. We just don’t know when.

Comprehending and connecting the infinite nodes and relationships within an economy are beyond even the most intelligent human’s capacity. Cause and effect chains are not always immediately observable. Feedback loops are often circuitous and unpredictable. What is at any given moment may not be what it appears.

Not Without Consequences

For instance, the Federal Reserve quadrupled its balance sheet following the 2008 financial crisis, yet consumer prices hardly budged. Undeniably, the Bureau of Labor Statistics’ consumer price index is subject to gross manipulation. We’re not endorsing the veracity of the CPI.

…click on the above link to read the rest of the article…

Newsflash From The December ‘Jobs’ Report—–The US Economy Is Dead In The Water

January 10, 2016

Newsflash From The December ‘Jobs’ Report—–The US Economy Is Dead In The Water

Here’s a newsflash that CNBC didn’t mention. According to the BLS, the US economy generated a miniscule 11,000 jobs in the month of December.

Yet notwithstanding the fact that almost nobody works outdoors any more, the BLS fiction writers added 281,000 to their headline number to cover the “seasonal adjustment.” This is done on the apparent truism that December is generally colder than November and that workers get holiday vacations.

Of course, this December was much warmer, not colder, than average. And that’s not the only deviation from normal seasonal trends.

The Christmas selling season this year, for example, was absolutely not comparable to the ghosts of Christmas past. Bricks and mortar retail is in turmoil and in secular decline due to Amazon and its e-commerce ilk, and this trend is accelerating by the year.

So too, energy and export based sectors have been thrown for a loop in the last few months by a surging dollar and collapsing commodity prices. Likewise, construction activity has been so weak in this cycle—-and for the good reason that both commercial and residential stock is vastly overbuilt owing to two decades of cheap credit—–that its not remotely comparable to historic patterns.

Never mind. The BLS always adds the same big dollop of jobs to the December establishment survey come hell or high water. In fact, the seasonal adjustment has averaged 320,000 for the last 12 years!

For crying out loud, folks, every December is different—–and not just because of the vagaries of the weather. Capitalism is about incessant change and reallocation of economic activity and resources. And now the globalized ebbs and flows of economic activity have only accentuated the rate and intensity of these adjustments.

…click on the above link to read the rest of the article…

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