A dead, rotting fish could paint a good picture for the dollar. Photo by oliver.dodd via flickr.com. License: Creative Commons
Officially, the inflation rate in the US is only 1-2 percent. However, alternative price indices calculate 8-10 percent. Has the US government manipulated the standard of value for the world’s most important currency? Is it just an illusion that the US emerged from the crisis of the early 2000s? And what does that mean for the rest of the world? A look at a scandal that shows once again why we need a decentralized alternative to a rotting monetary system. In the Middle Ages, “dearth of prices” was one of the great plagues that tormented people in the tale of tears of earthly life. Today, inflation is called inflation, but it still means the same thing: the rise in prices for services and goods. This is apparently easy to observe in everyday life. A year ago the noodles still cost so and so much, and back then you paid 3 marks for a doner kebab, and so on. On the other hand, it is much more difficult to substantiate inflation economically. The common practice is to refer to a basket of goods and services that is typical of everyday consumption and see how its price has changed over the course of a year. The difference is the inflation rates. This is currently officially less than one percent in both the US and the EU. Unofficially, it is no longer a secret that the matter is not quite so clear-cut. A report by the Devonshire Research Group, which informs investors through analyzes, questions the official inflation rate and compares it with alternative perspectives that calculate significantly higher inflation.
An index to deceive and deceive them
The report begins with the First World War. During this, prices rose rapidly in the US, and to find out how to adjust wages, the government defined a “Consumer Price Index” (CPI). This is intended to show what influence the price increases have on the standard of living. A CPI contains a shopping cart with relevant goods as well as a mathematical formula to weight them and to derive an inflation figure from the prices. The CPI is based on numerous design decisions for which there is no objective “right!”, But only a weighing up of advantages and disadvantages. How is the shopping cart to be composed? How do you calculate changes? What role does the control of the consumer, who adjusts his purchasing decisions to the prices, play? And so on. As always, when there is no objective truth, but only subjective views, that makes the CPI the plaything of interests. The tug-of-war between powers over the authority to interpret reality determines him less than scientific reality. Critics of the official inflation calculation have long complained that the government changes the formula of the CPI at its discretion if it takes advantage of it. For example, the price index rose 12 percent in 1983. That would have been a decent rate of inflation, but you won’t find it in any official statistics. Because the government has changed the way the index is calculated. The reason she did this is perfidious, and it shows how toxic incentives affect the CPI: the higher the inflation, the higher the wages the government pays to its employees. When the inflation rate is lower, public sector workers have fewer arguments in salary negotiations. According to a 1995 calculation, “correcting” the CPI should save the government $ 634 billion over the next decade. A year later, the index was “adjusted”, and again and again in the following years until 2000. Each of these changes have reduced the inflation rate slightly. It is easy to produce a desired truth when one is determining the formula that measures reality. The US government wants inflation to be low – so inflation is low. It has fluctuated around 3 percent over the past few decades, which is fine, while the economy is growing decently. Officially, this means that the citizens of the USA are getting wealthier. But now there are economists who question this official version of the story and try to bring to light the real price increase.
Alternative price indices show much higher inflation rates
Devonshire analysts present several alternative price indices: the Shadowstats index since 2006, the Chapwood index since 2012, and the CPPI, which calculates price changes back to 1983. But what do these indices do differently? The Chapwood Index claims to be the first to “determine the true cost of the percentage increase in the cost of living”. To this end, the researchers have collected data on more than 4,000 products and services across the country over the years to find out what people spend their money on in everyday life. From these goods, they selected the 500 most important in order to calculate an index that shows the inflation for regions and cities in the USA. The Shadowstats Index, on the other hand, relies on the data from the official basket of goods, but corrects the government’s methodological changes by using formulas from 1980 to 1990. The CPPI also starts from the official CPI, but changes it to get closer to the actual price increase. What is the result if we look at the price increase from the alternative models? They all end up with significantly higher inflation. While the government has given inflation rates of 1-2 percent – in some cases even less – for the last six years, the CPPI comes to 4-5 percent. The Shadowstats even calculate 8-10 percent, and the Chapwood Index – perhaps the most thorough and independent method – tends to be 10-12 percent, depending on the region. The report combines these three alternatives to find an inflation rate of around 8 percent. You have to pause for a moment to understand what that actually means. The richest and most powerful country in the world may have had an inflation rate of 8, if not 10 percent, for at least 5 years, if not decades. The consequences are enormous. For example, for the prosperity of Americans: Officially, it is said that prices have doubled since the late 80s and have increased by 47 percent since the late 90s. Thanks to wage increases since then, the purchasing power of most citizens has either remained stable or increased. Looking at the alternative indices, purchasing power would have fallen by a factor of 5-20 since 1970. The citizens kept getting poorer. This could explain why it is becoming more and more difficult for many Americans to pay for their accustomed lifestyle, the quality of life is felt to decrease and the debt is increasing. According to the paper, the US never emerged from the recession in the early 2000s. While the official story tells of growth, the alternative indices show that there has been no growth, only the ongoing destruction of purchasing power. The narrative of recovery from the crisis is a legend. The perspective on investments is also fundamentally changing. Assuming an inflation rate of 8 percent, you effectively lose purchasing power if you receive less interest. Interest of 2-4 percent on dollars – that is a comparatively high amount – destroy values; likewise the five percent typical for funds and real estate. Even if you get “unrealistic” interest rates of ten percent or more, you don’t gain much. To put it this way, you have to get very good conditions for the risk of holding dollars to be worthwhile.
The fish starts to rot in the head
Can these results also be applied to the euro? I am not sure here. As already described, there are also alternative shopping baskets and price indices for the Eurozone, which for example come to the rather depressing result that German citizens can now afford less measure at the Oktoberfest than in the 50s and 70s. Of course, it is also conceivable that the standard of living in the euro zone is now significantly higher than the official figures suggest compared to that in the USA. It is also conceivable, however, that the shopping basket could also be misused in the euro zone in order to hide the true inflation figures, for example to prevent the public service unions from making arguments for (even greater) wage increases. To make matters worse, the dollar is not just any currency – it is virtually the world currency. The dollar is synonymous with the motto: the money that you need in almost all parts of the world to import goods from abroad. When the currency collapses somewhere, for example in Venezuela or Zimbabwe, the dollar is used as a matter of course; even in Nigeria, where the currency only fluctuates, there is a black market for the dollar. The dollar is used globally to determine the values of other currencies. What if the purchasing power of this fundamental measure of value has been manipulated by the US government, with full intent and with the aim of disguising the fact that the measure itself is about to collapse? What does that say about global money? Probably one thing above all: it’s time to look for the exit from the rotting system. Fortunately, it already exists.