Look! More Advocacy Of Fraud! (Chained CPI)
Sadly, Congress and the White House seem incapable of agreeing on substantive measures to tackle the $10.4 trillion mountain of U.S. debt.What Bloomberg is talking about is the use of so-called "chained" CPI.
But there is one long-overdue piece of important business that can and should get done: The adoption of a more accurate gauge of U.S. inflation that would yield immediate savings and help put the economy on firmer ground. The fix has already been endorsed by lawmakers in both parties, the Obama administration, many economists and a series of bipartisan deficit-reduction panels....
What could possibly be wrong with this little word -- "chained"?
If you've read Leverage you know that one of the big scams is that the so-called "CPI" (consumer price index), which is what the government calls "inflation", is intentionally misleading.
Among the intentional distortions are the use of "owners equivalent rent" instead of house prices; the rent for a given piece of property goes down during repressed interest rates, while housing bubbles are encouraged. That is, it costs less to purchase for investment on a cash-flow basis during such a time, which tends to make prices go up -- but rents go down, since cash flow is how rents are balanced in the marketplace. And housing is the largest single expense for most households.
In addition the percentage computations for CPI are set for a "median" household. This grossly understates the impact of rising food and energy prices for those who have a less-than-median income, and overstates them for wealthy households. For example, electricity is allegedly 2.894% (about 3%) of your budget. It's less than that for me, and I live in Florida where AC use is rampant. But for someone who has a $200/month power bill here and a $50,000 gross income, netting around $40,000, their power bill is some 10% of their net income, not 3%.
Food at home is allegedly 8.6% of spending. For my household it's considerably less than that. For a family of four who only makes $25,000 a year I challenge you to feed them for under $200/month.
Then there's "hedonic adjustment", which is part and parcel of "chained CPI." Some of this is already in the CPI; you can no longer buy a tube television, for example, but the LCD display is some 40% "better" according to the BLS -- so the fact that it's 40% more expensive is not counted as "inflation." Of course if your old TV breaks from your perspective you either pay 40% more or have no television at all....MORE