Any Bonds Today?

Any Bonds Today?

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls . . . become 'profiteers', who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished not less than the proletariat. As the inflation proceeds . . . all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless….

– John Maynard Keynes

One of the more frequent and important questions I get asked when I travel is whether I think we will see inflation or deflation. My usual flippant answer is "Yes," and then I go on to explain that there is no simple answer. Over what time period? In what country? And by what means do you want me to measure inflation or deflation? Today we take a look at part of a white paper I am working on with Jonathan Tepper, the co-author of Endgame, on this topic. I think you will find it interesting reading on a summer's day. And I have to quickly mention the absolute disaster that is happening before our eyes in the labor market. Our kids are getting skewered (the polite word) by unintended consequences of the Affordable Care Act. We need a bipartisan fix quick, before we damage an entire generation.

But first, let me call your attention to a dynamite conference at which I'll be speaking in October. It's "3 Days with Casey," the Casey Research Summit for 2013, to be held October 4-7 in Tuscon, Arizona. In addition to the indomitable, incredible Doug Casey, my friends Ron Paul, Lacy Hunt, Rick Rule, and Don Coxe will all stand and deliver, along with a bunch of other outstanding speakers, including Jim Rickards (author of Currency Wars), Paul Brodsky (I love this guy's stuff!), and Chris Martenson (author of The Crash Course). And of course you get the whole Casey research team. Thoughts from the Frontline readers can get a special early bird discount here. Come help me celebrate my 64th birthday!

A Temporary Problem

Back in 2010, a number of analysts (including me) noted an unintended consequence buried in the Affordable Healthcare Act (aka ObamaCare). Employers are not required to provide insurance for temporary workers, and a temporary worker is defined as someone who works under 29 hours per week. Many of us noted that this would result in businesses shifting workers from full-time to part-time. The answer from AHA supporters was that "No, it wouldn't" or that the effect would be small. There was no real way to know, of course. I and others could only point to our experience of how the real world works. If you defined the cut-off for part-time work at 35 or 39 hours a week instead of 29, the economics of ObamaCare simply got blown out of the water. But the bill passed, and now it's law.

And now the argument is over. It is clear that businesses have indeed responded to the rather perverse incentives in the law. A year ago, growth in full-time employment far outpaced increases in temporary employment. That trend has reversed this year. Mort Zuckerman wrote in an op-ed piece in the Wall Street Journal this week:

The jobless nature of the recovery is particularly unsettling. In June, the government's Household Survey reported that since the start of the year, the number of people with jobs increased by 753,000 – but there are jobs and then there are "'jobs."' No fewer than 557,000 of these positions were only part-time. The June survey reported that in June full time jobs declined by 240,000, while part-time jobs soared 360,000 and have now reached an all-time high of 28,059,000 – three million more part-time positions than when the recession began at the end of 2007.

That's just for starters. The survey includes part-time workers who want full-time work but can't get it, as well as those who want to work but have stopped looking. That puts the real unemployment rate for June at 14.3%, up from 13.8% in May.

The US Chamber of Commerce summarizes the situation:

"Small businesses expect the AHA requirement to negatively impact their employees. Twenty-seven percent say they will cut hours to reduce full-time employees, 24 percent will reduce hiring, and 23 percent plan to replace full-time employees with part-time workers to avoid triggering the mandate."

Younger people and those whose jobs could readily be farmed out to plenty of potential replacements are in danger. There are many jobs that can almost as easily be done by two people working 20-25 hours as by person working 40-50 hours. And that is what is happening. As Zuckerman notes, if you count those who have only temporary employment though they want full-time work, the unemployment rate rose last month from 13.8% to 14.3%. This is recovery?

I have seen this happen in my own family (and to a union member, no less!). How can you support yourself on a part-time job? Juggling two part-time jobs takes a lot more than 40 hours a week and increases the costs of getting to and from work. And under the AHA, the government, not the employer(s), is going to have to pick up that bill if a part-time worker is going to have health insurance.

Republicans want to repeal ObamaCare. Many are not interested in anything short of that outcome. Democrats don't want to change anything and won't touch legislative fixes, afraid to be seen as opening up the whole issue before the next mid-term elections. But we are seriously damaging the ability of people to get work and be able to support themselves and especially the opportunity for younger people to get work that can result in acquiring skills and moving upward on the income scale. The definition of part-time should revert to the traditional standard: if you work less than 40 hours a week, you are part-time.

I get that that destroys the economics of ObamaCare. But do we want to see our children as unintended casualties in a political war over healthcare? A bill has been introduced to fix this problem in the Senate. The US Chamber of Commerce survey is telling us the direction we are currently headed in. Do we really want to wait until things get even worse?

And now, let's think about inflation, together with my co-author, Jonathan Tepper.

Any Bonds Today?

Can you imagine Julia Roberts and Gwyneth Paltrow helping the US government sell bonds or Jay Z and Justin Timberlake composing songs about Treasury bills? It would not be the first time Hollywood stars or famous musicians tried to help the government sell its debt.

The last time the US government had an enormous load of debt, it used Hollywood stars to help sell government debt. The Treasury Department conducted a massive public relations campaign through radio, newspapers, and film. During World War II, war bond rallies were held throughout the country, and Hollywood stars such as Bette Davis and Rita Hayworth traveled around the country to promote war bonds. The great Irving Berlin even wrote a song titled "Any Bonds Today?" and Berlin's tune became the theme song of the Treasury Department's National Defense Savings Program.

The government also enlisted cartoon characters, actors, comedians, and musicians to encourage people to pay income taxes. Donald Duck told viewers it was their "duty and privilege" to pay income tax. Abbott and Costello appeared in advertisements to get people to pay taxes, and Irving Berlin wrote songs not only about bonds but songs about taxes like "I Paid My Income Tax Today."

While the war bond and income tax drives garnered all the press, the real reason the US was able to borrow so much and with so little burden had nothing to do with the glitz and glamor of movie stars. The US government borrowed easily because the Federal Reserve printed money to keep interest rates low. Borrowing is very easy when a central bank has your back.

How did it work in practice? As is the case today, the Treasury wanted to borrow cheaply then, and the central bank was happy to accommodate. In 1942, after the United States entered World War II, the Federal Reserve officially agreed to fix interest rates on government bonds at a low level. To maintain the pegged rate, the Fed was forced to give up control of the size of its balance sheet. Unsurprisingly, the Fed bought and held all available short-term US treasuries and almost all long-term government bonds.

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The costs of paying for World War II pushed the national debt up sharply, from around 40% of GDP before the war to a peak of nearly 110% as the war ended. But a combination of strong economic growth, tight fiscal policies, and financial repression brought the debt back below 50% of GDP by the late 1950s. (Currently our government debt has reached about 90% of GDP and continues climbing very sharply.)

During the war years, the Federal Reserve pegged long-term interest rates at extremely low levels so the government wouldn't have to pay much to fund itself. To make sure that inflation didn't spike, the government instituted wage and price controls. After the war, the price controls disappeared and inflation rose very quickly, averaging about 6.5 percent annually from 1946-51. By the postwar price peak nine years later, wholesale prices had more than doubled, and the stock of money had nearly tripled.

Normally, such high inflation would have made it much more expensive for the government to borrow money. But after being pressured by the Treasury, the Federal Reserve agreed to keep on pegging long-term government bond yields at 2.5% until the spring of 1951, when the Federal Reserve finally refused to print money to keep bond yields low. Because of the coordination between Federal Reserve and the US Treasury, real yields on government bonds were very negative during the years following World War II. With negative real yields, borrowers win and lenders lose. The clear winner was the US government, and the loser was anyone who bought and held US bonds. The combination of very low government bond borrowing costs and high inflation ate away a sizable chunk of the government's debt burden.

The same thing is happening today in almost all government bond markets around the world. Governments are winning, and investors are losing. The Federal Reserve is helping the Treasury to borrow cheaply while the government expands its deficit spending and debt accumulation. Using inflation and low bond yields this way to reduce government debt is called financial repression.

The government and central banks also contribute to higher inflation by pretending inflation is always under control. For example, throughout the Greenspan and Bernanke years, the Fed consistently chose to focus on lower inflation measures whenever doing so suited the central bank. You can see this in the semiannual monetary policy reports to Congress, specifically in the inflation forecasts made by the members of the Federal Open Market Committee. Until July 1988, inflation forecasts used the implicit deflator of the gross national product, but then the Fed switched to the Consumer Price Index. In February 2000, the Fed replaced CPI with the personal consumption expenditures (PCE) deflator. Thus from July 2004 onward, inflation forecasts have employed the core PCE deflator that excludes food and energy prices. Using lower and lower, less comprehensive estimates for inflation has allowed the Fed to pretend that it is meeting its mandate – but by ignoring high inflation readings. In the meantime, interest rates have been kept too low, and the inflation rate has consistently remained above the Federal Funds rate.

But measuring inflation is not so easy. The vast majority of readers have no idea about the rather contentious nature of the debates that go on in academic conferences about arcane topics such as the minutiae of how to measure some minor aspect of inflation. Passions run deep. Careers are made. Once you delve into how things are actually done, you realize that what we think of as an inflation number is actually an approximation of an idea the very definition of which can change over time.

Your perception of inflation (and everyone else's) has a very close relationship to how stock markets perform over time. Indeed, one of the questions we are both regularly asked wherever we speak is something along the lines of "What do you think inflation or deflation will be?" And the answer is not easy: it depends on a number of factors that vary from country to country.

In general, the trend for the last 75 years has been one of inflation. Sometimes, in some countries, inflation has spun out of control. At other times you see outright deflation. Neither one promises good times for investors. Ever-falling inflation or low inflation is the best environment for investing. But given the paramount importance of the inflation/deflation debate, we need to briefly investigate what inflation is and is not.

There has been a great deal written about the difficulty of measuring inflation and about the potential manipulation of inflation statistics over the last 30 years. John Williams of ShadowStats is the most-noted proponent of the position that inflation is running well above the current US government's number of 2% (for the 12 months ending February 2013).

Employing the methodology that was used in 1980 under the Carter administration, inflation would currently be about 9.6% (see chart below). Using the government methodology from 1990, inflation today turns out to be a little under 6%.


(Fair warning: The following will be regarded as a contentious statement by the gold bugs and hyperinflationists out there. For some of you, to accept it would be like admitting your religious beliefs are wrong.)

The topic of those alternate inflation numbers comes up often at our tables of conversation. Generally it seems to be clear that the methodologies used in 1980 and 1990 are visibly, patently, demonstrably wrong. If inflation were now at 9.6%, then interest rates should be closer to 12% and not the 1.75% we see on the 10-year Treasury today (more on that topic in a minute), no matter what the Fed wanted, unless they were willing to monetize not only new debt but any existing debt that got rolled over as well. Over time, markets respond to actual inflation and not government statistics. Argentina's government can state that inflation is "only" 10%, but the market thinks it is 30% and rising.

The government calculation of inflation in 1980 or 1990 was the best they could do at the time. Gentle reader, it was a government calculation. There is nothing ex cathedra about either methodology. In religious terms, neither rises to the stature of the original Greek documents or the Latin Vulgate Bible. Changing the words (the equations) in economics should not be seen as somehow equivalent to changing the fundamental documents of a religion. There is nothing sacred about 1980 CPI methodology, and in fact we can look at it empirically and understand that it was pretty flawed.

You might have some personal investment bias (read "quasi-theological reason") to want inflation to be high. But that is a belief system. It is one form of faith-based economics (It is not a large stretch to suggest that most economic schools require of their adherents a measure of faith and belief). Expectations of high inflation are for some people a basic tenet of their belief system. Saying there is only a little inflation must therefore be a government manipulation.

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We must constantly be comparing our assumptions against what we observe in the real world, in order to discern where our models, with their built-in assumptions, bias our conclusions about what the data says.

If you think overall general inflation is high, then you have to think the entire world is delusional. (Note: your personal inflation rate may be much higher than 2%.) G-7 interest rates are at an all-time low today. That can and will change; but right now the bond market does not see inflation as a problem anywhere in the developed world, although Japan has now made what must be their 10th vow in the last 20 years to create inflation. This time, they may actually (for them, catastrophically!) succeed. For now, however, deflation and deleveraging are the order of the day.

If we had kept the methodology used until 1980 for calculating the Consumer Price Index and then used that number to adjust Social Security and government pensions, the US government would be bankrupt today. Social Security would have gone negative in the 1990s and tripled in cost in the last 12 years (compounding at 10% can do that). Now, those of you living on Social Security might think a tripling of payments is appropriate, given what has happened to your budgets, but younger taxpayers would hasten to differ. (Note: we are not arguing that SS provides a livable income at current levels. Different topic for another paper.)

All this is not to say that today's inflation methodology is correct or gives us a number that is accurate. It is simply better than the methodology used in 1980 – but it is still just a statistical method that tries to reach for the impossible, all-illumnating star of reliability and finally has to settle for accuracy in general at the risk of imprecision in the particulars. We will be able to look back in 15 years to see how well we are doing today at measuring inflation. The real surprise would come if we don't change methodologies at least a few more times between now and 2030.

It is hard to argue with people who point out that prices and the cost of living are going up faster than government-reported inflation reflects. We can all see prices rising. Food, energy, tuition (try managing all that for 30 years with seven kids!) – they're all going up. If we had used actual home prices in the CPI, inflation would have been seen as very high in the middle of the last decade. Instead, we seemed to be flirting with deflation; and if we used housing prices in 2008-2011, we would certainly have had government-reported deflation. In place of home prices, the Bureau of Labor Statistics decided to use something called Owners' Equivalent Rent a few decades ago; and it is the largest part, a full 24%, of the CPI. Something called hedonics is probably the most contentious part of the CPI calculation. The BLS says, "The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item." This is not as mysterious as it sounds. When, for example, you replace your old computer with a new one, paying roughly what you did before, the new model you buy is always faster and more powerful than the old one. The BLS says you are getting more for your dollar; therefore the price fell even if you paid as much or more for the new computer. Opponents say hedonics can be used to hide "true" inflation.

We do know that a lot of items have in fact gone down in price and up in quality or capacity. Cell phones are a good example. And the cost of using cells may be ready to really fall. There is a full smart phone that uses a major carrier and Wi-Fi in combination now on the market for $20 a month for all the voice, data, and text you can eat. It works on Wi-Fi in Asia, in Europe, and in the middle of the Andes. You pay basically nothing for 10 or 15 or 40 hours a week of talk time, and people can call you anywhere in the world using a local US number if you are connected to Wi-Fi.

Most egregiously for many, the CPI also does not take into consideration income taxes. For a number of people, taxes are their largest source of inflation!

Yet all of us here in the US are governed by the same people in Washington, and they define inflation in their own way, via the Consumer Price Index and various related benchmarks. Because CPI tries to find a national "average" inflation rate, it is almost by definition inaccurate for any given person, family, business, city, or state. CPI is the least common denominator, a "one size fits all" coat that in reality fits no one very well. (For the record, all the data used to calculate inflation is public. You can calculate inflation for your own local area if you have nothing better to do. In fact, the entire methodology is public, if a little dense.)

Given the acknowledged limitations of the CPI, we nevertheless use it in myriad ways. It governs cost-of-living adjustments for Social Security beneficiaries, government employees, and many labor union members. CPI is baked into the general cake, even though we know it is an imperfect fit in almost every situation.

As a result, some people get raises when their cost of living drops, while for others the cost of living rises faster than their income does. Is this fair? No. Is there a better way? We don't know what it would be. There are hundreds of smart people who build entire careers trying to answer that question.

Other inflation measures exist, but they all have their own limitations. Three Federal Reserve Bank regions calculate their own versions of CPI. The Federal Reserve itself prefers to look at something called PCE, or Personal Consumption Expenditures, a measure which uses chained dollars rather than a fixed basket as the CPI does. Since 2000, the Federal Reserve has used PCE in its reports to Congress about expectations for inflation.

In explaining its preference for the PCE, the Fed stated:

The chain-type price PCE index draws extensively on data from the consumer price index but, while not entirely free of measurement problems, has several advantages relative to the CPI. The PCE chain-type index is constructed from a formula that reflects the changing composition of spending and thereby avoids some of the upward bias associated with the fixed-weight nature of the CPI. In addition, the weights are based on a more comprehensive measure of expenditures. Finally, historical data used in the PCE price index can be revised to account for newly available information and for improvements in measurement techniques, including those that affect source data from the CPI; the result is a more consistent series over time. ("Monetary Policy Report to the Congress," Federal Reserve Board of Governors, Feb. 17, 2000)

Contentious? You bet! PCE and other chained inflation numbers generally yield lower inflation figures, which is why many in Congress (and the AARP) think the "chained dollars" amount to some sort of conspiracy to defraud seniors on Social Security. CPI is used to calculate adjustments for income taxes. If it is too low, then incomes rise faster in real terms than cost adjustments do, and that acts as a tax increase even as your pension is adjusted lower. But if inflation is calculated too high, then taxes are lower than they would otherwise be and the costs of Social Security and pensions are higher. Talk about using a sledgehammer to fine-tune a highly developed economy. Even small miscalculations will add up over time to large losses for someone. Ouch!

Newport, NYC, Maine, and Montana

I head off to Newport, Rhode Island, on Sunday to spend a week in a workshop for the Department of Defense at the Naval War College there. Basically, they gather 12 or so experts in a wide variety of fields to sit down with people from the five branches of the military who are responsible for future planning (utilizing both the hard and soft sciences). They ask us to come up with a set of future scenarios that are outside the current mainstream consensus but that the Defense Department might need to consider in their planning. I am not exactly sure why I get invited, but it's a week of mind candy for me. When I was first asked, I wondered how much it would cost me. I actually get a government stipend and my room and board. They do work your derriere off, but it's worth it. (Google "Andrew Marshall and the Office of Net Assessment." Marshall is 91, was appointed by Nixon to head the Office of Net Assessment, and has been reappointed by every president since then. It is an honor to be in the same room with him. I recently taped an interview with Andrew on how he goes about thinking about the future, and at some point I'll make it public.)

After a week in Newport, I go to NYC for a few days of meetings and work on projects before I head to Maine for the annual fishing trip (Camp Kotok at Leen's Lodge in Grand Lake Stream) the following week. That Friday (Aug. 2) I will likely be on Bloomberg in the morning, live from Maine, at about 9 AM. It will be Jobs Report Friday, so that is usually the topic of conversation. I will note more on that schedule next week. Then I am home for a week before I head to Montana for four days of R&R at the lake home of my good friend Darrel Cain.

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For those interested, I recently did an interview with Eric King on King World News. You can listen in at

It has been a busy week as I play catch-up with the commitments and reading I got behind on while I was sick. I am now fully recovered, although I can't do 50 push-ups yet. That is my personal marker for being back. I'll get there. Have a great week!

Your worried about jobs for the kids analyst,

John Mauldin Thoughts from the Frontline
John Mauldin

P.S. If you like my letters, you'll love reading Over My Shoulder with serious economic analysis from my global network, at a surprisingly affordable price. Click here to learn more.


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Walter Stolber
July 25, 2013, 12:54 p.m.

Walter Stolber,
Congratulation to Mauldin/Tepper for a fine piece highlighting pitfalls on inflation/deflation measurements.
Regardless of which method applied, the ubiquitousness of the index almost by defintion is converting it to a contentious tool. The standard answer is ” faut de mieux”, we have to live with it and adjust the index according to socio- economic circumstances. Thus, making the door wide open to imagined and/or realistic conspiration theories. Fact is,  the admission that CPI is an average which cannot be tested by an individual`s personal experience, by definition is putting the index on a pedestal beyond control. An unsettling situation, especially for million of people whose real income development heavily depends on accuracy of index measurement.
Do we have to live with a contentious index, be it CPI,PCE or any other,  eventually burdened with diminishing public acceptance as time goes on?
Indeed, there must be a better way to come up with results more atuned to realities on the ground. For this to happen, the results ie, of the CPI index, will have to be submitted to and be tested by consumer representation.
In a first step public opinion polling (marketing research) is providing tools to test the calculated index results. In a second round, a sample of the polling group will be confronted to the Delphi Technique -a standardized consensus seeking method.
By following the two step approach , the method would minimise the so-called “public good`s problem” in Public Finance , the unwillingness of the consumer to reveal his true preferences; in this case, his unwillingness to reveal his factual price development experiences (inherent danger of overstatement). 
This combined approach would have the advantage to link governmental measurements with the experiences of the consumer on the ground imbedded in a feedback mechanism.
An approach to my knowledge never tried before, lets test it!

Tony Evans
July 22, 2013, 9:31 a.m.

Trying to get out of the mess we’ve made of our government budgets and banking system without hurting the most vocal part of our countrymen has smartly led to these low interest rates. While big is now bigger with even more powerful voices, smaller is now smaller and can barely be heard. 28,000,000 part-time workers together with all of their might can’t make the noise equivalent of one Goldman CEO.

Fairness has always been a pipe dream of the have nots reinforced by the haves who promise “your time will come”. History suggests that it takes centuries for a “wealth” re-balancing act of magnitude only to be shuffled in fewer hand within decades.

While brains of every nation have long struggled with concepts of equality others have found ways to profit from their efforts. So this is the way we move forward hopeful the “new plan” will get it more right than the last.

Ronald Nimmo
July 22, 2013, 4:59 a.m.

Reply to Matthew McNeelege: In some ways, it is good that we have gridlock in Congress. In other ways it isn’t. What you think is common sense it I might consider stupidity or insanity!

Ronald Nimmo
July 22, 2013, 4:53 a.m.

John has stated that longer term interest rates are the real measure of the level of inflation. Since the Federal Reserve is buying $85 billion of long term debt each month, how do we know where those rates would be if the Fed stopped doing so? One hint is that the 10 year note went up a full percentage point in one month at the mere speculation of tapering down the purchases! John says that the Fed could not buy enough bonds to significantly lower the interest rates on all debt, new and existing. But the fact remains that they are doing so and would not continue doing so unless they thought it was effective. It worked in the 1940’s and it is working now. I don’t think anyone, including John, believes rates would be as low as they have been, and still are, without QE3.
  My conclusion is that interest rates, especially longer term ones, cannot be considered a reliable indicator of underlying inflation in the US under present conditions. Wait until there is no more QE, and then we will know what the real level of interest rates actually is.

July 21, 2013, 11:35 p.m.

Mr. Mauldin should apply to himself the charges of economics conjectures he faithfully indict whom differ from his church.

Interest rates of 10-year Treasury today are cited as evidence of “...that the methodologies used in 1980 and 1990 are visibly, patently, demonstrably wrong.” Well, but then why the 10-year Treasury interest rates and inflation expectation in the 80’s was so adherent on the measurements of those methodologies. Why the 10-year Treasury interest rates wasn’t much lower in the 80’s ? Are you supposing the world in the 80’s was delusional? You think it’s absurd to suppose delusional today but not in the 80’s ?

Apart the incoherence and cognitive dislocation there’s is the non sequitur of the phrase itself “If you think overall general inflation is high, then you have to think the entire world is delusional.” No you don’t. The market today has a complex structure of incentives,regulation and legal constraints that make extant fundamentals like price and interest rate sometimes too much away from normal market equilibria matching the actual inflation expectation . Or better saying the long term equilibrium could be made unstable by the regulation complex. You don’t have to suppose delusions. Just constate the financial repression applied to the market machine whose programming language is the structure of incentives and regulations constraints that direct money management centers like funds, pensions and governments to following certain performance benchmarks even if, albeit with a possibility of relative gain, there’s sure absolute loss.

About inflation measuring. It’s misleading to camouflage behind a barrage of adjectives and a “facial cream” of feign neutrality the ugly wrinkles of the very mechanisms of individual disenfranchisement. To boot and In regards of:

1)Hedonics. it’s a practice to always consider as “quality gains” the deliberated marketing strategy of incremental changes in consumer products, mostly gadgets. These incremental changes, although concrete (but irrelevant in many cases) are at the same time only symbolic in regard of quality increase. The incremental concrete changes constituting a simulacrum of the process of increasing in quality.

Also there’s a strong bias to favor “quality gains” vis-à-vis “quality loss”. Exempli gratia: Has the deterioration of food quality by pollution, pesticide and radioactive phosphate fertilizer been embed in the index as quality loss ? No.
Has the time degradation of houses, physical construction or site, and the concomitant loss of living accommodation quality been factored systematically in the Owners’ Equivalent Rent? Nope.
Has the programmed Obsolescence in consumer product “career track” type of marketing, where irrelevant incremental changes in lieu of improving quality are programmed to be performed ahead of time, been factored in as a real increasing in quality to reduce the index measurement of inflation. Oh Yes!

2) PCE and the Chained dollars. Is clear that a increase in inflation degrade the basket that people normally would consume in the absence of the said increase in inflation. Then the Chained dollars methodology comes in and measure the prices changes on an ideal basket consisting in averaging this degraded basket with the normal basket thus sanctioning the degradation of purchasing power. Next period the same is applied “chained” recursively, that is the degraded basket will be considered a normal basket that would be averaged to a yet more degraded basket and so on.  The sobriquet “Chained” should more aptly be named the “entropic recursive estimator of inflation”. A case of “Reductio ad absurdum” could easily be made. The loss of power purchase recomposition resulting from measuring prices to a basket converging to nothing.     

Why the ever social engineering propagandist allude, like Mr. Mauldin do here, to the pejorative concept of “conspiration theorists” to characterize those who oppose such a clear grab of wealth by the government and corporations ? To smear and stigmatize ? Shame on you!

It’s a conspiration ? No. it’s just systematic, open, transparent and ample exploitation of the public oceanic economic ignorance.

Paul Orme 33276
July 21, 2013, 9:51 p.m.

John thanks for your article.. you do a wonderful job… BUT I was really bothered by your article because I think the problem we have is EMENCE.

The Emancipation Proclamation was signed 150 years ago but today we basically have slavery.. economic slavery ... you touch on it for the youth. But it is much started with the Great Society which Johnson announced at the U of Michigan graduation. At that time a GM worker could send his or her child to college and have a cottage on a lake in Michigan.

But since then the working person in the United States has been shafted.. In his book The Great Deformation David Stockman states on page 68 the $50,000 median household income has grown .3% annually after adjustment for inflation.  And real hourly wages have declined 25% since 1979. While the top 1% share of net worth has grown from 20% to 35% since 1979 and share of income has doubled to 25%.. How can you have a country with those statistics?

Productivity is up but the workers are not getting more… recent PBS show noted that Walmart is coming to Washington DC and does not want to pay a living wage. An there is an argument about raising the minimum to $9.50 when based on inflation it should be $16.50.

Again the top 5% hold $40 trillion in net worth a $32 trillion gain of $8 trillion they held in 1985. The bottom 95% are just $8 trillion higher so the top 5% grew 4 times faster.

Something is wrong.. we have 22 million out of work, we have corporate profits at all time highs, we borrow 40c of each dollar we spend.


The top 5% want economic slavery for the 95. We want to collect date on them and have their health records so we can CONTROL THEM.

We want two classes Haves and Have Nots and we have a Congress bought and paid for and the president does the bidding of some powerful forces…

So what is next… well looks like ECONOMIC COLLAPSE, UPRISING OF THE PEOPLE, and then CONTROL via ___________________ (fill in the blank).

USA is on a hopeless pass that the powers that be are letting happen and yet I can only think that the debt and promises in Social Security and other benefits will never be paid because we don’t have the funds and may not have the people.

Hey John, ask the defense department folks whether the Chemtrails you will see when you go outside for a break are part of a ULTIMATE SOLUTIONS… TAKE A LOOK UP.. THOSE ARE NOT CONTRAILS. YEA… CLIMATE ENGINEERING.





ronald blake
July 21, 2013, 8:03 p.m.

Hi John

Do you think that you could give us the name of the product or service that you talk about in your thoughts from the front line.

Like the smartphone you talked about for $20.00 a month.

I see way to many people doing what you have done in above. It’s like your all afraid of being sued or something.

Thanks     Ron Blake

Nicholas Ah Kun
July 21, 2013, 6:43 p.m.

John, i think you’re missing the point.

Alternative (non-mainstream) economists, financial analysts etc do not look at the 1980 CPI methodogy as a ‘religion’. The only reason one should look at it, in spite of its flaws, is to get a like measure. In the mid to late 70’s everyone was complaining about stagflation. High inflation. How then can we compare todays inflation number if its calculated differently?

It’s like comparing a car’s MPG fuel efficiency from 40 years ago to todays, but increasing the size of the gallon from the US gallon to the imperial gallon and then proclaiming fuel efficiency has gone up?

Hardly the thing to make sound financial decisions on. As an alternate, us ‘religious folk’, would also be happy if someone calculated late 70’s cpi using todays methodology. I’d then also like to speak to all financial analysts and economists who complained there eas inflation in the 70’s when clearly the 21st century cpi measure proves there was none.
July 21, 2013, 1:47 p.m.

Thanks for the entertaining and informative article.  50 push-ups may be a bit many even for a young 64 year old.  Here are a few of my favorite quotes:

“The market can stay irrational longer than you can stay solvent.”
—John Maynard Keynes

“When the facts change, I change my mind. What do you do, sir?”
—John Maynard Keynes

“... a speculator is one who runs risks of which he is aware and an investor is one who runs risks of which he is unaware.”
—John Maynard Keynes

“In the long run we are all dead.”
—John Maynard Keynes

“If you owe your banker a thousand pounds, you are at his mercy. If you owe your banker a million pounds, he is at your mercy.”
—John Maynard Keynes

“There is nothing so disastrous as a rational investment policy in an irrational world.”
—John maynard Keynes

“Outside of a dog, a book is man’s best friend. Inside of a dog it’s too dark to read.”
—Groucho Marx

“If stupidity got us into this mess, then why can’t it get us out?”
—Will Rogers

“If you find yourself in a hole, stop digging.”
—Will Rogers

“Don’t gamble! Take all your savings and buy some good stock and hold it ‘till it goes up, then sell it. If it don’t go up, don’t buy it.”
—Will Rogers
July 21, 2013, 11:13 a.m.

Josh Patrick in Vermont: I don’t know about “most states”, but in mine the unemployment premium is a percentage of the employer’s total gross payroll plus a charge of a few pennies per hour worked.  So all other things being equal, employing part-timers would NOT increase costs for an employer.  But I don’t understand your statement: “In most states unemployment insurance is paid on the first $6,000 of wages. With two employees, instead of paying $3,000 once, you’ll be paying it twice. This is more than you would pay for a one person insurance program.” Aren’t you mixing apples and oranges?

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