Thursday, May 22, 2014


In THE CONSUMER PRICE INDEX NEVER HAS MEASURED INFLATION, EVER. CLAIMING SO HAS BEEN A EPIC CON JOB, I show how the  "the most widely used measure of inflation," the Consumer Price Index (CPI)fails to measure inflation precisely because those behind it measure prices and not inflation. 

The worst is the jokers at the BLS who conjure the CPI measure current inflated prices by a base of past inflated prices. Stop. Think about that for a moment.

With their failed method, they cannot eliminate the effects of inflation. In short, the CPI is bunco.

Milton Friedman was a famed economist, popular writer and winner of the Nobel Prize in Economics back in 1976. Friedman is famous in egghead circles for having said:

"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." 

Edwin Walter Kemmerer was a famed economist, a man known as "the money doctor." Kemmerer said this about inflation:

Friedman and Kemmerer point the way. Here is the Red Pill that you must swallow if you want to free yourself from the silly, false belief of rising prices means inflation. 

You must come to see that you do not have money. No one does. 

Instead, you have Federal Reserve Bank Units (FRBUs), or if you like better, Federal Reserve Buying Units. FRBUs are what pay for goods. All goods get priced in FRBUs. 

Money is coined metal by weight and fineness. Always, money can exist without banking and government. Cash only can exist with banking and banks. Legal tender cash needs banking backed by the force of government.

In the fiduciary monetary system of centralized bank notes, inflation is merely the growth of the circulating media — cash, which is evidence of past deposits circulating in perpetuity and bank credit in the form of checkable deposits transferred by bank instruments such as checks and debit cards.

Thus, to know reality and escape the Matrix requires you to account for inflation by FRBUs and by no other way. The FRBU deflator is our red pill to see reality. 


Inflation happened already. That is what led to the banking crisis of 2008.

The damaging effects of inflation become revealed when the growth of credit outstrips the growth of output owing to credit being priced too cheap. Banking crises always happen at peak inflation right in the midst of prosperity.

Have a look at true credit and true GDP.

Since 2008, true bank credit has been falling. True GDP has fallen right along with the fall in bank credit. The fall of bank credit means deflation has been underway. 

True bank credit is down -43.4% from peak credit at the start of Q2, 2008. True Credit has been falling at an annualized rate of -9.1%.

True GDP has been falling and falling. True GDP is down -42.8% from the peak! True GDP has been falling at an annualized rate of -8.9%!

That's a trade depression. Look at it. I call it the Greatest Depression.


So let's have a look at true prices, shall we? Prices have been falling for decades since before peak credit. 

Say what?! Yes, it's true. Once the effects of accretion of FRBUs get removed using the FRBU deflator, we get true, inflation-free prices. 

First let's look at food and energy.

It's no wonder chief bankers at the Federal Reserve exclude food and energy from their watch. Yet, always, you hear many decry that your friendly neighborhood Fed Res bankers ignore food and energy prices.

Now, let's look at house prices. 

House prices went on quite the roller coaster ride between 1980 and 2013. Yet, the average price for a house today is lower than in 1980 by 36%! 

Interestingly, the average house price to income has averaged $6.63. The 2012 ratio of $6.44 is under 3% from the average.

Yet, there is a fly in the ointment, which I shall get to soon, the fly on the wall that explains why you suffer.

But first, here is the ugliness that many Americans understand. Tuition prices have risen a whopping 85% since 1980!


So why do Americans feel so miserable and claim to be broken financially? Well, there is good reason for that too.

A wage is a price and as all prices have been falling, so too have wages fallen.

The average wage has fallen 41% since 1980!

So why have true wages fallen? All should heed my dictum:

Labor makes property. Capital makes property efficiently.


True wages have fallen in lockstep with true capital spending per capita of prime age working adults (25-54). Wages and capital are interlinked.

Trading wealth as property in cash and credit in a purchase and sale for wealth as property in things determines the extent of markets. Only in proportion as labor becomes pricier that it becomes profitable to use cheaper methods (capital) to amplify labor.

There are no means by which living standards can better that do not involve the increase in wealth per capita of prime age workers. Increasing returns to capital arise when true wages go up. To discover how to make increasing returns to capital is to solve the problems of poverty and lowering living standard. 

As can be seen here, the growth in prime age working adults in America has been tremendous, up 45.3% since 1980.

And not-so-coincidentally, wages have fallen 41% and capital spending has fallen 49.5%!

Born-again socialism revivalist preachers like Thomas Piketty who attack wealth simply do not understand trade and commercial life at all. 

Having more wealth is what makes all better off. More wealth comes from more efficient production. More efficient production comes from more capital.  More capital spending per worker raises wages. 

While the living standard in America has been falling, the living standard for Chinese has been rising. Why is that? There has been more capital spending per worker in China since the Chinese turned capitalist.

It's the same story everywhere.

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