FEDERAL RESERVE BANKERS HAVE INFLATED U.S. STOCKS, MAYBE 70% TO BEYOND 100%

For those who follow stocks and stock markets, all too often, you'll hear or read a one pundit or another say stocks are overvalued or stocks are undervalued. What never you hear these pundits say is stocks are overvalued or undervalued relative to what.



Many use the S&P 500 as the benchmark index. The S&P 500 tracks 500 large firms, which having common stock listed either through the New York Stock Exchange or through NASDAQ.

Often, you'll get comparisons of the  S&P 500 relative to the U.S. economy. Many believe the S&P 500 signals the near future of the U.S. economy. Should they, though?

Since 2003, revenues of S&P 500 firms earn outside the USA has averaged a bit more 45%. Said another way, S&P 500 firms earn 55% of their revenues from foreigners living in foreign lands. According to a 2011 Wall Street Journal story, "U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers ... employed 21.1 million people at home in 2009 and 10.3 million elsewhere."

On the face of it, the S&P 500 does not seem to be a good measure of the U.S. economy. What we would need to know is of the roughly 20% of American workers employed by S&P 500 firms, what percentage of total private sector income is the sum of their incomes.

Other indexes exist, like the S&P 400, which tracks stocks of firms total market capitalization that falls within $750 million to $3.3 billion. The Russell 3000 tracks stocks by market capitalization of 3,000 firms, which represent 98% of U.S. firms with publicly traded stocks.

The Russell 2000 tracks the bottom 2,000 stocks of the Russell 3000. The Russell 2000 represents only 8% of the total market cap of the Russell 3000. Said another way, the top 1000 firms of the Russell 3000 constitute 92% of the index.















As I showed in THE SECRETS OF AUTOMATED CLEARINGS, GDP AND THE ECONOMY. RECOVERY? WHEN?, no one should expect revival of the economy until true commercial clearings of banking transactions advance. No one should expect significant growth of the economy until true government clearings advance.

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IS THERE EVER REASON TO BUY GOLD?

The Internet attracts all kinds of crazies, doomsayers and hucksters. Sometimes the Internet attracts doomsaying hucksters. Among those are the gold bugs.



Gold bugs shall tell you there is no better time to buy gold. Then they shall tell story after story saying the apocalypse is nigh.

Many of them earn their living brokering gold. The more they can cajole others to buy, the higher the price for gold. The higher the price, the more commission they earn from the same percent.




Buying gold is speculating long on price. It's not investing. 

Investing means buying an income stream. Speculating means betting on price changes.

Anyone who tells you that you can invest in gold either is clueless or is lying. Never is there an income stream from gold.

Since going long gold is speculating, what counts is how much stuff you can buy when you sell gold should you own any. What you want to know is how many gallons of gasoline can you buy in future or how many airline tickets or how many back massages and  so on.

Anyone who has bought gold since the end of Q3 2011 has lost buying power, that is three years running. Gold is a horrible speculation play today. 

Anyone who would have bought gold after Q3 1980 until Q1 2001 would have taken a bath, with the first washing done from Q3 1980 until Q2 1986. After a head fake through Q4 1987, gold buyers continued to lose buying power every year until the end of Q1 2001.

Sure, if someone caught the wave of gold starting Q1 2001 to Q3 2011, that one lucked out. True gold, that is gold priced in gold window dollars, the only authentic inflation deflator, went from a low of $51.94 to a peak of $172.05. Gold grew at a yearly rate of 11.8%, growing a whopping 231.2% from low to peak.

In that time, True S&P 500 fell at a yearly rate of -5.8%, falling a painful -47.7%.

Yet, had someone bought the True S&P 500 at $86.50 at the end of Q1 1994 and rode that until Q3 2000, that lucky one would have enjoyed a yearly growth of 22.3%, double the return of the great gold rush of the 2000s, with the total growth coming in at 251.4%.

In the long bull run between Q3 1974 and Q3 2000, True S&P 500 grew at a yearly rate of 7%, growing a full 484.3%.

In the long gold run from a Q3 1976 to Q3 2011, True Gold grew at less than 1% a year, coming in at a scant 0.5% a year for a total of 19.6%, from $87.11 to $104.18. In the same period, True S&P 500 grew almost 4 times as fast, albeit at 1.8% a year for a total of 95%, from $78.12 to $152.33.

Easily then, compared to gold, even with the crash of 1987 and the following bear that ended in q1 1988 (-32.2% annual decline), and the much longer bear markets of 2000-2002 (-21.7% annual decline) and 2007-2009 (-35.9%), stocks were still a much better deal over the period 1976 to today. 

As I show in LOSING ITS LUSTER. THE SECRET FUTURE OF GOLD REVEALED, gold trades in ratio to true prime rate. Current gold already has priced in what true prime should look like absent interest rate suppression by your friendly Fed Res central bankers.

In S&P 500 VS GOLD, I show the true price of gold and the true price of the S&P 500. As politicians long ago demonetized gold, gold pricing works the same as any other commodity, adhering to the forces of the Law of Prices — the winning bids of purchase and sale in the face of what is on offer set the price — and the Axiom of Profit — the sum of sales set on winning bids must at least equal the cost of production, otherwise the producer goes to ruin.

The days are long past when faced with inflation — too much bank credit circulating beyond trade needs — pushed anyone to ship their gold to other countries with bankers who offered higher interest rates.

The 2000s gold rush has brought out every gold bug who at long last felt vindicated for all of their ranting against financial asset-backed cash vs their favored gold-backed cash. That rush is over and has been three years. All of the doom and gloomers lack facts of reality as you now have them. For if they had them, long ago would they have shut up about gold. 

And if you stopped and then started to think about it, that should be so. Mankind gets ever smarter and more efficient at organizing matter and energy into property that ever more desire. Efficiency with respect to gold mining and possession is much harder to gain.

Likely, no one is going to see another gold run as we have seen for another 25 years. The big run up in gold mostly came with the big credit expansion and bubble. Gold then went higher when uncertainty grew. 

No one on earth is going to see another big run in gold like the run between 2001 and 2011 unless another credit expansion happens at an alike rate of 7.1% a year. Normal true credit growth from low to high runs at 2.5% a year.

The 2000s gold rush has brought out every gold bug who at long last felt vindicated for all of their ranting against financial asset-backed cash vs their favored gold-backed cash. That rush is over and has been three years.

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SOPHIE'S CHOICE OF CAPITAL OR LABOR. A FREE-MARKETS LIBERTARIAN BECOMES AN ANTI-CAPITALIST AND PERPETUATES AN ECONOMICS MYTH

So today on Forbes, Jeffrey Dorfman, a professor of economics at The University of Georgia, who touts himself as a "free market, libertarian" presents a quite false Sophie's choice description of labor vs capital, which plays well to the misinformed masses. Such labor vs capital silliness is is standard fare for economists. 

Dorfman argues that Americans don't have high-paying jobs anymore because 1) automation is killing the middle class, and 2) lower interest rates causes a substitution of capital for labor and thus the cause for automation over workers.

Dorfman says that Americans are living in a "dumbbell economy, where most of the jobs are at either the lower or upper end of the income spectrum, with few jobs left in the middle class." Dorfman started his argument that capital in the form of automation is killing jobs and a cause of low pay and that more capital makes for fewer "middle class" jobs. In short, Dorfman is a pro-capitalist arguing against capital!

Because Dorfman is an academic economist, he is fooled by economics. As I show in Why is the Economy So Horrible? Because Academia Economics is Fake, Dorfman's false beliefs fail to surprise me.

Before the industrial era, almost all Americans were poor, barely living above bare subsistence poverty. Almost all were farmers who traded little. 

Farmers had little capital. There were hand tools and maybe a few plow horses. 

The few "wealthy" Americans were those involved in shipping. Ships of shipping, of course, are capital.

Under the automation of industrialism, true wages or "real" wages if said by economists rose and rose substantially. As Americans added machinery, which, of course, is capital, workers' buying power as expressed in true pay rose.

In effort to lift his specious "dumbbell" argument, Dorfman points to yard workers, retail shelves stockers, neurosurgeons and movie stars as workers whose work can't be automated while work "rules-based" work as accountants, travel agents, bank tellers, can have their work automated with computers. Yet, the dumbbells Dorfman lifts are quite like the ones President Obama has been seen lifting. Such is for the weak.

Academician economists like Dorfman claim that wages should fall when cap spending rises and wages should rise when cap spending fall. 

To economists, wages vs capital is the Sophie's Choice of economics! In short, economists like Dorfman argue in favor of Luddites (and thus Socialists)!

Academician economists fail to see reality. They think only with their hollow theories, which fail to match real-world reality. 

Wages and capital are interlinked. Wages are a consequence of producing wealth under efficiency. The more wealth produced and gained by each worker, the higher wages can rise.

High capital spending causes high wages. Wages rise when capital spending per worker rises. 

Jobs that fetch low wages are such jobs with little capital needed to amplify the work. Yet, jobs that fetch high wages are those that take much capital to do the work.

The cap spend for yard work is tiny. Lawnmowers and leaf blowers are cheap. Many lawns can be mowed and cleaned in a day by using no-skill workers and super cheap capital.

The cap spend for neurosurgeons is much. Surgical rooms are filled with an abundance of one-of-a-kind equipment and slew of pricey technicians. A surgeon can operate only on one brain a day, maybe two.

The cap spend for movie stars is much. Movies require pricey cameras, pricey sets, pricey editing machines, and slew of pricey technicians. 

The cap spend for accountants, travel agents, bank tellers is low. Computers are cheap. Pushing data through fiber optics is even cheaper. 

Only in proportion as labor becomes pricier that it becomes profitable to use cheaper methods (capital) to amplify labor. Capital spending arises because of likely increasing returns to capital. 

THE CHART SOCIALISTS AND POLITICIANS DON'T WANT YOU TO SEE AND THE CHART THAT SHOWS ECONOMISTS DON'T UNDERSTAND COMMERCIAL LIFE

Here, you can see charts for true wages and true capital spending flowing in lockstep. True wages have been falling for years in lockstep with true capital spending per prime age worker, those between 25 and 54. 

During the Clinton Good Times, wages rose. Wages fell thereafter. Workers enjoyed a small return to growing true wages during the final inflation of the Greenspan-Bernanke Credit Bubble, the largest bubble in American history.

In general, true prices have been falling for decades. And as a wage is a price, so too have true wages been falling. In Prices have been Falling for Years! Inflation? Major Deflation has been Underway Since 2007. So Why Does Life Seem Harder? I show you charts of prices for all kinds of goods falling and for years 

The Dorfman claim that entrepreneur-adventurers ask themselves "Should they hire people or should they automate?" never has reflected commercial reality. The true question is this: Is there a dearth of workers or is there an abundance of workers?

The growth in prime age working adults in America has been tremendous, up 45.3% since 1980. And not-so-coincidentally, true wages have fallen 41% and capital spending has fallen 49.5%!



True cap spending has been falling for years in America for heavy industry. Yet, cap spending for R&D and software has been rising. 



Check out the True State of the Union, Private Sector Capital to see more charts.

In You Are Going to Wind Up Working in a Gas Station. Capitalism is Dying, Americans, I show you a table of true wages for various occupations since 2000. You can see that wages rose during inflation of the massive Greenspan-Bernanke credit bubble and then fell substantially during deflation of that bubble precisely because more credit led to more capital spend and less credit to less capital spend.

All trade is about trading the right of ownership (property) in stuff, completed work or future payments in purchases and sales for profit. All of the names mankind uses for property (right of ownership) — capital, wealth, asset, collateral, stock — are names of property in various states — production, trade, estimation, deals of credit, potential sales.

Heed my dictum. Labor makes property. Capital makes property efficiently. 

All trade gets governed by one true, infrangible law and one axiom — the Law of Prices and the Axiom of Profit. The Law of Prices holds the winning bids of purchase and sale in the face of what is on offer set the price. The Axiom of Profit holds the sum of sales must at least equal the cost of production or the producer goes to ruin.

As I explain in Poverty and Envy, there is profit and loss for everything. We calculate profit or loss by subtracting outlays from income. No one works at a loss, whether wages less living expenses for workers or income less outlays for firms. In the absence of intervention, some things would not get sold for long as the sum of sales could not yield a profit.

Entrepreneur-adventurers are smart laborers. Entrepreneur-adventurers arise because of capital. 

Without capital, there is little reason to organize workers. Without capital, everyone lives at bare subsistence. 

All producers get constrained by the great Axiom of Profit. Capital becomes a factor in production only if in using capital, workers can produce property in stock or in work cheaper than by producing property in those things without capital. 

The capitalist buys a share of the profits from the entrepreneur-adventurer by selling cash and credit in a purchase and sale. Such a trade can arise only if the entrepreneur-adventurer can enlarge profits to cover his cost of capital and enlarge income to cover his cost of labor. In short, the permanent use of capital arises only under increasing returns whereby application of capital yields a proportional increase in output.

Little variation exists in the muscularity among individuals. Thus, little variation arises in the output owing to hand labor alone. However, with capital, variation is manifold according to various application of technology leading to degrees of efficiency.

With small production — hand labor — consumption is small precisely because low wages can only afford low payouts. In proportion as a market enlarges — more product on offer to many with low wages — wages can rise for those who make more product on offer. More product on offer only can come from efficiency achieved with capital amplifying labor.

Significant production of property to become wealth requires capital. As proportion of wealth produced by labor falls, the actual amount the laborer gets rises. More wealth produced leads to a higher living standard for those producing it. In short, capital leads to better living. 
Never are workers robbed by capital. Workers gain by capital. This is so not because capitalists are generous, but because entrepreneur-adventurers only can use capital under increasing returns.

Because of capital, workers can consume more than they could ever produce absent capital. It is owing to capital that all material progress arises. Revivalist Preachers of Born-Again Socialism like Thomas Piketty simply don't understand capitalism and thus reality.

For more on this, check out  Capitalism. Because without it, You Would be Living as a Bare Subsistence Savage and Elites Seek to Punish Workers with a Consumption Tax, or a Tax on Workers' Wealth.

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CONTEMPORARY AGE SUPERSTITION. THOSE SUFFERING FROM IT CLAIM WE'RE EATING OIL WHILE DROWNING IN INFLATION.

A well-known blogger, Mr. X,  claims food prices are high because mankind eats oil. In fact, he says, "...regardless of what we eat, we're actually eating oil." His beliefs are fraught with fallacy and superstition.

First, Mr. X says "the cost of basic foods keeps rising" when he should have written price instead of cost. Cost is outlay. Cost is the sum of purchases.

However, Mr. X's claim is not true. Prices have been falling for years.

Sure, the denominational price of food has been rising, you know, in dollars. However, stripping out  the effects of inflation of Federal Reserve Bank Units, the bank credit that consists of the dollar, true prices for food have been falling. Food prices have been falling even before massive deflation of bank credit since the Banking Crisis of 2008.

When you stop and then start to think about it, food prices should be falling. Owing to technological advances, food producers have become more efficient. Owing to NAFTA and CAFTA trade agreements, there is more output of crops to markets. Because food producers have become more efficient, food sellers can accept winning bids and still maintain profit margins.

So why does it hurt when spending wages for food in denominational prices? Well, along with food prices, wage rates are prices too. True wages have been falling right along with food prices (to learn why, check out the chart socialists and politicians don't want you to see).



So back to Mr. X. Mr. X claims food prices move "in virtual lockstep with the one master commodity in an industrialized global economy," that is with oil prices. Thus Mr. X  concludes that cost of oil sets the price of food. Mr. X falls for the long discredited fallacy of David Ricardo that the price of something is set by the cost.

There is one, true, infrangible law for the whole of trade and one great axiom — the Law of Prices and the Axiom of Profit. The Law of Prices holds the winning bids of purchase and sale in the face of what is on offer sets the price. The Axiom of Profit holds the sum of sales on extant prices must at least equal the cost of production otherwise the producer goes to ruin.

It's winning bidders for food who set prices. Once prices are set, those farmers whose marginal cost of production exceed winning prices get pushed into loss and ruin. Those farmers who can at least break even on costs stay in the game. So winning farmers take prices that have them break even on their largest cost components — oil-based diesel to run tractors.

Let's let the pictures of reality tell us the truth. First, let's look at food prices versus diesel with expressed in True Dollars™.



Diesel prices (fat black line) rose a whopping 133.21% during the Greenspan-Bernanke Bubble, the greatest inflation of bank credit in the history of mankind. As always bank credit inflation is the only kind of inflation that ever has existed.

As you can see, even in the face of rising diesel prices, food prices fell. Only steak and burgers saw a slight rise in prices during the Greenspan-Bernanke Bubble. Even with those rises, prices were lower during the Greenspan-Bernanke Bubble than compared to the late 1980s.

Now, let's look at food prices versus potash with expressed in True Dollars™. Of course, potash is fertilizer derived from mined potassium salts.


The price of potash (fat green line) for each ton shot up an eye-gouging 163.7% during the crazed Greenspan-Bernanke Bubble!

Mr. X laments over Fed Res central bankers, blaming their policies for fueling oil prices higher. However, what does the picture of reality say about oil prices using West Texas Intermediate as the global oil surrogate?


Like everything else, during the Greenspan-Bernanke Bubble, the greatest inflation of bank credit in the history of mankind, the price of WTI shot up 55%! With the 42% deflation since, prices have fallen. 

As Mr. X sees higher prices for food expressed in current dollars, so too does he see higher oil prices expressed in dollars. Mr. X offers two reasons why.

First he blames evil speculators in futures contracts. Blaming speculators is an ace-in-the-hole move. Next he blames Fed Res bankers for purported credit creation that allegedly has "weakened" the dollar.

If food prices were really rising while wages really falling, there would have been riots on the streets by now. Americans would have experienced their own "Arab Spring."

Mr. X doesn't understand the reality of trade. He sees conspiracy around every corner and thus seeks to lay blame on purported evils.

Mr. X lives by what I call contemporary-age superstition. Mr. X has been educated and thus he believes he is modern, contemporary, in-the-know, not like the peasants of the Middle Ages or even early modern times.

Yet, Mr. X is little different than those of the past likely he would ridicule.

Unless you are willing to accept these facts of reality, you cannot know reality, Instead, you too shall be living like Mr. X by contemporary-age superstition. 

When you believe in things you don't understand ... ♪♫

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DO YOU STILL BELIEVE THAT INFLATION MEANS RISING PRICES RATHER THAN RISING BANK CREDIT?

Elsewhere, I have shown that Federal Reserve Bank Units (FRBUs), or if you like better, Federal Reserve Buying Units are what circulate goods and services in the U.S.A. and elsewhere on earth.

I have explained that as money is coined metal by weight and fineness and that money can exist without banking and government. You do not have money and never in your lifetime have you had money.

Today, there is only cash, which is evidence of past bank deposits circulating in perpetuity and checkable deposits, which, too, is bank credit.  Both cash and deposits must have banks and banking to exist. 

Many continue to accept the myth spread as a false meme that inflation means higher prices, that somehow prices cause inflation. Nothing could be sillier than to believe something could be the cause of itself.

The supposed most widely used measure of inflation fails to measure inflation precisely because the Consumer Price Index (CPI) measures prices and not inflation. The government tricksters at the Bureau of Labor Statistics who give you the CPI measure current inflated prices by a base of past inflated prices. 

Using data from the Federal Reserve and the Bureau of Economic Analysis, I have shown that prices have been falling for years even before deflation that has been underway since 2007.

Yet, if you have doubts of what I teach, read below a smattering of writing from a treasure trove of works I have at my disposal. All the writers say the same. 



Inflation is a rise of bank credit beyond trade needs. Inflation leads to the profit squeeze when the sum of sales on extant prices set by winning bidders is below the outlay for production. When many awaken to their lacking the means to pay bills, this leads to crisis and subsequent collapse of trade. This collapse all know as recession or depression.

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PRICES HAVE BEEN FALLING FOR YEARS! INFLATION? MAJOR DEFLATION HAS BEEN UNDERWAY SINCE 2007. SO WHY DOES LIFE SEEM HARDER? THE ANSWERS ARE COMING NEO.

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 FIRST, THEN DEFLATION ALWAYS. 

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.

AND FALLING PRICES, IT'S TRUE

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!

WHY MISERY IF PRICES ARE FALLING?

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.

THE CHART SOCIALISTS AND POLITICIANS DON'T WANT YOU TO SEE

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.

Be sure to check out these:

• WHY IS THE ECONOMY SO HORRIBLE? BECAUSE ACADEMIA ECONOMICS IS FAKE.
• WORK NEVER CREATES VALUE. WORK CREATES PROPERTY.
• INFLATION REVEALED! "REAL GDP" AND FEDERAL RESERVE BANK UNITS.
• THE THEORY OF TRADING PROPERTY FOR PROFIT
• FALLACY FRAUGHT FORBES TRIES TO STOKE FEARS OF HYPERINFLATION

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THE CONSUMER PRICE INDEX NEVER HAS MEASURED INFLATION, EVER. CLAIMING SO HAS BEEN AN EPIC CON JOB.

The Bureau of Labor Statistics of the Department of Labor publishes the Consumer Price Index (CPI). 

Those at the BLS claim the CPI is "the most widely used measure of inflation,"  that anyone can use the CPI as a deflator "to translate ... (economic data) into inflation-free dollars." 

Sadly, those at the BLS claim over two million workers must suffer through collective bargaining agreements, which tie their wages to the CPI.

Humorously, those at the BLS claim "the CPI is an indicator of the effectiveness of government policy."

Of course, the CPI cannot measure inflation. Never in its history has the CPI translated any dollar measures into "inflation-free" dollars.

Inflation is a consequence of banking. 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.

The damaging effect of inflation becomes revealed when the growth of credit outstrips the growth of output owing to credit being priced too cheap. 


Edwin Walter Kemmerer was known as "the money doctor." This is what he had to say about inflation:

 

Kemmerer goes on to say:

All prices adhere to the one, true, infrangible law for all of trade — the Law of Prices. The Law of Prices of holds the winning bids of purchase and sale for what is on offer set the price.

Producers get constrained by the great Axiom of Profit. The Axiom of Profit holds the sum of sales must at least equal the cost of production otherwise producers go to ruin.

The prices set by winning bidders determine the sum of sales for producers. At whatever price winning bidders set, those producers whose costs are higher than their sales get forced out of production. 

Prices reflect buying power and willingness to bid. Even if bidders have more credit in their hands in the face of what is on offer and but are unwilling to bid more, prices shall not rise. 

Establishing a market basket of goods fails to measure inflation. Producers come and go depending upon efficiency of production and capital formation. Consumers tastes change as innovation replaces products altogether, e.g., the MP3 player replaced the portable CD player, even more so than improvement leads to brand switching.

Though some dispute the current numbers collected to calculate the CPI, such as John Williams at Shadowstats.com, most, including Mr. Williams, believe the idea behind the CPI as measure of inflation is right when in fact the CPI never can measure inflation.

All the CPI can measure are random changes through time for prices of specific goods with prices driven by specific market situation for each good.

No one can even use the CPI to project to a universe of prices the way random sampling with a suitable sample size can project to a universe of observation.

The CPI has been one of the biggest con jobs since the advent of the Federal Reserve.

To better understand inflation, check out INFLATION REVEALED! "REAL GDP" AND FEDERAL RESERVE BANK UNITS.

Be sure to check out the Bizarro Theater Dashboard for updated charts.

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PRICES ARE UP BUT NOT BECAUSE OF INFLATION. WITNESS THE CRAZY FEDERAL RESERVE DEBASEMENT POLICY

So today, Mish reports that food prices are on the rise. 

To understand inflation, you need to understand commercial banking and central banking. To help you, check out INFLATION REVEALED! "REAL GDP" AND FEDERAL RESERVE BANK UNITS.


 


Yet, real credit is down and down much from peak credit at the end of 2007. That is deflation.



Real bank credit is down 41% from peak credit at the start of Q2, 2008. The economy runs on bank credit mostly and not so much cash.

From a major low of 1994-January-1, peak inflation hit 2008-April-1. The first bubble, from 1994-January-1 through 2001-January-1 grew a whopping 71%!

Instead of letting it pop, Alan Greenspan, then Chairman of the Federal Reserve pushed the bubble higher still. From the 2002-April-1 pause until peak inflation 2008-April-1, the credit bubble grew another 47.1%!

The Bernanke Leg, which began Ben Bernanke became Chairman of Federal Reserve, pushed the obscene bubble even higher, to its inflation peak hit 2008-April-1. Bernanke oversaw 19.7% growth in credit in a scant two years!

From inception to peak, the massive bank credit bubble under chairmen Greenspan and Bernanke grew an out-of-sight 140.2%! To put it in perspective, from the Nixon Shock to the major low of 1994-January-1, bank credit grew only 28.57%!

Since peak credit, bank credit has fallen 41.2%. That is deflation.

Edwin Walter Kemmerer gave good description of what is inflation:



Kemmerer goes on to say:




And that is the key point. The U.S. dollar has been debased by increasing the number of dollars in circulation aggressively.

Have a look at the craziness ushered in by Ben Bernanke!

The peak GDP-to-Cash ratio hit, 1981-January-1, when $1 of cash could buy $27.35 of GDP. Today, $1 of cash buys a measly $14.80. This is the lowest ever for the dollar to GDP since the Nixon Shock, which I wrote about in ELECTRICITY PRICES. SHOCKING, ISN'T IT? THANKS, NIXON.

The GDP-to-Cash ratio has fallen a whopping 24.10% since peak credit  2008-April-1.

The sum of cash in circulation has jumped an eye-gouging 52.5% since peak credit 2008-April-1! That is why prices for goods transacted mostly in cash have gone up substantially.

In short, owing to welfare programs and bailouts, too much cash has been pumped into circulation but there hasn't been a sufficient rise in goods output.

Yet, prices of credit-based transacted goods have fallen tremendously since peak credit, in spite of recent upticks, most of which reflect pumped cash into circulation. After all, all prices get denominated in multiples or fractions of the cash unit, which is, of course, the U.S. dollar.

What is really happening then? How can prices go up under deflation?

Before deflation, there must be inflation. Inflation happened already.

Cash accretion has been ongoing for awhile. Cash and deposits are interchangeable. Sometimes bankers pay bank credit on deposits, which of course, creates more deposits.

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INFLATION REVEALED! "REAL" GDP AND FEDERAL RESERVE BANK UNITS.

Federal Reserve Bank Units (FRBUs), or if you like better, Federal Reserve Buying Units are what circulate goods and services in the U.S.A. and elsewhere on earth.

Many Americans think they have money, but they do not. No one does. 

As I explain in BITCOIN IS SOFTWARE PROTECTED BY COPYRIGHT. BITCOIN IS NOT LEGAL TENDER CASH, money is coined metal by weight and fineness. The Romans said so. It's their word. Always, money can exist without banking and government. 

Today, there is only cash, which is evidence of past bank deposits circulating in perpetuity and checkable deposits, which, too, is bank credit.  Both cash and deposits must have banks and banking to exist. Americans have legal tender cash. 

From the banker's view, cash and deposits are one and the same. Both are liabilities of bankers. 

Everything in America gets priced in cash and deposits, which are one and the same. 

In ELECTRICITY PRICES. SHOCKING, ISN'T IT? THANKS, NIXON, I explain that Richard Nixon, then president of the U.S., through Executive Order 11615, closed the gold window, which put Americans on fiduciary bank credits as money system and thus the world on a floating exchange rate scheme for international trade settlement.


During my university days, professor eggheads who spread their false doctrine of economics, unwittingly of course, cherry-picked as their preferred base GDP from which to calculate "real" GDP average GDP between 1980-1982.  Today, it seems eggheads are fond of 2009. Either way, doing so reveals foolery.

Here, you can see GDP, every year in current dollars as well as "real" GDP expressed in 1971 GDP using the last quarter of 1971 annualized GDP, which is the first quarter of commerce after the Nixon shock of closing the gold window. The chart looks typical of any year where an official government agency "deflates" the current dollar GDP. 

 


Merely measuring today's GDP in another year's GDP fails to capture reality. All anyone is doing is measuring another year's GDP in the base year's inflated GDP.

In doing so, there is no way to isolate effects on price owing to changes in what actually circulates goods — cash and checkable deposits.

And for the foregoing, this is why everyone is wrong who publishes so-called "real" GDP stats using the method approved by economist academicians everywhere.


Edwin Walter Kemmerer gave good description of what is inflation:

Kemmerer goes on to say:

The right way to measure inflation or deflation is to measure changes to the sum of checkable deposits and cash in circulation. The sum of checkable deposits and cash is what I call FRBUs.

FRBUs give the best tool to measure inflation. The chart below reveals the quarterly changes in FRBUs. 

 
And the next chart shows the yearly change of FRBUs, which, of course, is inflation or deflation of that which circulates goods in America under a fiduciary monetary system of bank credits.

 


And here is what True GDP looks like when removing inflation in FRBUs. This is GDP calculated in gold window dollars (GWDs).



As you can see True GDP looks quite a bit different from what politicians sell you. Yet, anyone who has lived as a working-class, wage-earning adult during these years sees how the graph resonates with his or her experiences.

As I recall, the years 1980 through 1982 were bad ones. The years 1986 through 1989 were good ones. From the time the first Gulf War hit until 1993 were bad years. The years 1993 through the dot com peak of the 2000s were good ones, truly good ones.

From dot com to dot bomb were weak years. And then the final credit bubble madness hit with as expressed in the residential realty bubble.

Life has been pretty tough in America since peak credit 2008. The economy has gotten smaller every year since peak credit. Everyone can tell you this is so from their experiences.

Yet, by the shape of the curve, anyone can see the shrinking is slowing. The current economy is about the size between 1993 and 1994.

Likely, using the FRBU deflator is the most accurate tool to measure inflation you can get, unlike the Consumer Price Index (CPI) of the U.S. Department of Labor and its Bureau of Labor Statistics. The jokers at the BLS use all kinds of deceitful trickery to massage the CPI numbers.

Besides, inflation is a banking phenomenon. Without banking there cannot be inflation. As I explain in FALLACY FRAUGHT FORBES TRIES TO STOKE FEARS OF HYPERINFLATION, inflation is the growth of credit that outstrips the growth of output owing to credit being priced too cheap. 

As I show in PARTY OVER OOPS OUT OF TIME. YOU SHOULD HAVE PARTIED LIKE IT WAS 1999, prices for many things have risen substantively since 1999. For many things, today, it takes more minutes for the average wage earner in America than the comparable average wage worker in 1999.

So what is the difference between 1986 through 1999, or the Reagan-Bush Era and the Clinton Good Times versus 2001 through now, or the Bush-Obama Hard Times?

Why it's the growth of checkable deposits relative to cash. It's this growth that results in higher prices and a lower living standard for bottom class and middle class Americans. 

The blue and red bars reveal the growth of cash and checkable deposits, respectively for their respective periods. The orange bars reveal the ratio of cash to checkable deposits.




During the Reagan-Bush Era and the Clinton Good Times when the living standard grew for the average wage earner each year, there were almost two dollars ($1.97) in cash for every one dollar in deposit bank credit. However, during the Bush-Obama Hard Times, there was only about 75 cents ($0.74) in cash for every one dollar in deposit bank credit.

In YOU LIVE AT THE MERCY OF A CLOWN-CAR DRIVEN BY MEN AND WOMEN OF THE FEDERAL RESERVE, I show how clueless former egghead in chief of the Federal Reserve, Ben Bernanke is. Bernanke failed to see a bubble in residential realty brought on by inflation (too much credit). 

Bernanke pursued exactly the wrong policy. Bernanke sought to increase deposit bank credit rather than what he should have done, deflate it. More so, Bernanke should have pursued action to restore a strong cash-to-deposits ratio.

In what class do you find yourself? If you don't know, I explain it in BUT WERE YOU EVER IN THE MIDDLE CLASS?

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