“The U.S. Federal Reserve is wrong to focus on core measures of inflation that exclude energy prices, Charles Bean, chief economist at the Bank of England, has suggested.
It should focus instead on headline inflation, which is much higher, he argued. Including energy and food costs, U.S. consumer price inflation is running a an annual rate of 4.1 per cent, against 2.7 for core inflation.”
Financial Times of London, 8/28/06, pg. 4
More and more Americans are telling pollsters they are increasingly worried about “the economy.” They are aware of some of the rapidly growing, severe problems the U.S. economy faces. They know this mainly because the average American is now suffering directly from the problems of employment, wage stagnation and decline, soaring inflation in housing, energy, food, education, retirement and many of the other biggest costs in their lives. As they say, they are struggling more and more to make ends meet — running faster on the treadmill and still falling further behind.
They do not, however, realize that their problems are the average problem of Americans — of the general public — and that the people from the middle down are suffering more and more at an increasing rate. They do not realize this because the U.S. government is lying to them about the crucial economic information and they are still too trusting of government agencies like the Fed.
The Real U.S. Economy, which is the Economy adjusted for all the inflation in prices produced by the vast tidal wave of paper dollars printed by the Fed over the past six years and more, has been declining for a great many months now. The Fed and other government agencies Lie about this by not counting the explosion in house prices, education costs, retirement, health and medical care, insurance, energy, and food in their official measure of inflation. The Consumer Price Index does not include house prices at all and this has been the most soaring inflation in the U.S. for about five years now, though the price increases are now down to almost zero because the Housing Bubble is breaking. Education and retirement costs (including the vast abandonment of retirement money owed by Corps. and so on) are grossly undercounted. The same is true of medical and health costs and insurance, which cover fewer of the full services they used to cover. The CPI does include the soaring costs of energy and food, so the Fed and the Big Media have cut them out by referring to the “Core CPI Inflation,” which is a totally ad hoc number they get by cutting out energy and food costs. But have you ever met an American, or any human being, who could live without food or energy? The Fed pretends it is cutting out the heart and core of inflation by cutting out food and energy because these are “variable.” But, of course, all prices are variable and this variability is the very reason one wants to keep measuring them: if they were not variable, it would be absurd to measure them more than one time.
The Fed, the pols, other government officials, the Big Media and economists who want to go along to get ahead in the System all pretend that these Lies are Great and Sacrosanct Truths. They do so not out of evil intent, except in the case of the pols seeking to get more power over your lives, but for a couple of obvious, secret reasons that are probably not entirely sinister. First, they do not want consumers to know that the American economy is in a desperate situation. If people knew the truth, they would SAVE, not spend, and would insist the government stop running up immense debts to pay-off its rich Party members and fight unwinnable wars. If people saved, the Fed believes in Keynesian Ideology the economy would shrink, so they Lie to get people to borrow and spend to pump-up the economy. The government and Fed poured out vast oceans of paper dollars over the past six years in a desperate Keynesian attempt to revive investment, income, consumption and growth to kick-start the economy after the Crash of the Nasdaq Bubble (created by earlier Fed floods of dollars to “pump-up the economy”) six years ago erased over 8 trillion dollars. They also increased the federal debt by a few trillion (still counting into the distant future) by cutting taxes for the upper income people while increasing expenditures. The result was a vast Residential Real Estate Bubble (which has added nine trillion dollars to the face value of homes), then a consumption Bubble, stock and bond Bubbles, an explosion of debt and zero savings [adjusting for real inflation, much less than zero], dependency on trillions in foreign loans, a flight of jobs and investment to China, India, and other cheaper wage countries, and many other distortions and lesser bubbles. Second, they hide inflation to keep down the inflation-adjustment wage and retirement benefits to tens of millions of Americans at the lower end of the income scale, which saves Big Corps. and government tens of billions of dollars a year.
The Fed and the rest of the government failed to kick-start a real investment boom and growth. They produced an immense burden of debt, inflation, Bubbles, and distortions of the whole global economy. Now all of that is unwinding faster and faster: we are spinning down faster and faster in a vortex of contraction that will most likely produce a “free fall” — Great Crash.
If the American people had seen the real inflation rates, real debt levels, and so on, they might have made wise choices in revolting against this insane Great Economic Experiment they were running on our economy. But people kept hearing over and over all day and night the Media blaring out “inflation is no problem,” “Inflation is benign,” etcetc. They are still living in that Cocoon of Government and Big Media Lies about inflation and the general state of the economy. So people are continuing to do all the things that will have terrible costs for them as the economy spins downward and the Great Crash engulfs them. They have no idea that the U.S. economy has been pouring almost all of the money that should have gone into productive investment into housing consumption, that the economy has been contracting in real terms now for a great many months, and that they will be left holding huge debts at all levels with less and less ability to pay them off.
The “Little White Fibs” of the Fed and government have turned out to be devastating Big Lies for Americans. By secretly corrupting the official statistics, the officials cut off much of the real, negative feedback in the System (the realization of the public that they were losing more and more), which allowed the distortions and Bubbles to soar to immense heights. It’s very much like cutting the pain nerves in your body. If you don’t feel the pain, you go on doing very dangerous, destructive things that can get you killed.
When they cut the negative feedback loops by feeding the public Big Lies in the official statistics they eliminated the free market economy and replaced it secretly with a highly rigged, Centrally planned economy which the Fed, pols and other officials were using as a guinea pig for a Great Experiment in Central Planning of Pump-Priming. Americans did not even know they were the guinea pig in a Central Planning Experiment of immense proportions, so they will be shocked when the terribly hard evidence of the failure of the Experiment comes home to roost in the form of a Great Crash.
They may well mumble in disbelief, But what happened to that New Economy, the Boom of Eternal Prosperity?
Jack D. Douglas [send him mail] is a retired professor of sociology from the University of California at San Diego. He has published widely on all major aspects of human beings, most notably The Myth of the Welfare State.