Con Job Redux - Bill Gross - Investors Conned by the government
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Bloomberg’s John Berry and the Fed’s William Poole are well intentioned I’m sure but they have an agenda like we all do................Their agenda is to support the Federal Reserve, its strategies, and by osmosis the thinking of its chairman, Alan Greenspan. I was not surprised, therefore to read their criticism of my October Investment Outlook Haute Con Job, which called into question the validity of our government’s inflation numbers. Berry and Poole read what they wanted to read and, as Paul Simon once suggested, disregarded the rest.
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My point, however, was as follows. The CPI inaccurately calculates Americans’ cost of living. Since Social Security and pension benefits, as well as the level of wage hikes are predicated upon the specific number and/or the perception of annual increases, Americans are being in effect conned by their government and falling behind the inflationary eight ball year after year.
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I do disagree with those adjustments being reflected in a CPI that is used to calculate the benefits of wage earners and retirees. The U.S. government has over 40 different CPI indices – there is not one sacred calculation. There is a CPI for medical care for instance, and a CPI for services, as well as a CPI for transportation. Take your pick. But in using for retirement benefits an hedonically adjusted CPI that lowers annual price increases by as much as 1%, they take money unjustly out of Americans’ pockets.
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I would take that assertion one step further by using the following example that strikes to the heart of the hedonic debate. Say the only product that Americans purchase and consume are bags of gumdrops – 100 to a bag that cost $1.00 per bag, with each citizen limited to 1 bag. Through the miracle of productivity, a way is found to fill each bag with 110 gumdrops that is now priced at $1.10. The government’s hedonic adjustments would now calculate that the bag really only costs $1.00 and that the CPI has not gone up. After all, each gumdrop in the bag still only costs a penny does it not? It does. But here’s the catch and the con. The price of a gumdrop hasn’t gone up, but the cost of a bag of gumdrops has. Because Americans must buy 1 bag as opposed to individual candies, their cost of living has increased by 10%. They must fork out an extra dime even though they’re getting more for their money. Now turn the gumdrops into computers, cell phones, refrigerators, etc. and you see my point. We can’t buy individual pieces of memory in a computer – we have to buy the entire package. And the package costs more whether it’s improved or not. The government’s hedonic adjustments may accurately reflect productivity increases, but they should not be part of a CPI, which is intended to depict America’s cost to live. In effect, that allows the benefits of productivity to accrue to businesses (which don’t provide adequate raises) and government (which under-compensates Social Security recipients). Holders of TIPS who are hoping to keep up with the cost of living via their “inflation protection” are disadvantaged as well. It’s a con – pure and very, very simple.
Bill Gross gerät über die Manipulation von der Fed bei der Preisinflation in Aufruhr.
Die Fed hat alle ihre Hände voll mit den Bondtradern zu tun.
Gross sollte etwas von seinem gemanagten Kapital von über $600 Milliarden in Gold anlegen.
hxxp://www.pimco.com/LeftNav/HomePageAnnouncements/IO+Con+job+redux+04.htm
Bloomberg’s John Berry and the Fed’s William Poole are well intentioned I’m sure but they have an agenda like we all do................Their agenda is to support the Federal Reserve, its strategies, and by osmosis the thinking of its chairman, Alan Greenspan. I was not surprised, therefore to read their criticism of my October Investment Outlook Haute Con Job, which called into question the validity of our government’s inflation numbers. Berry and Poole read what they wanted to read and, as Paul Simon once suggested, disregarded the rest.
................
My point, however, was as follows. The CPI inaccurately calculates Americans’ cost of living. Since Social Security and pension benefits, as well as the level of wage hikes are predicated upon the specific number and/or the perception of annual increases, Americans are being in effect conned by their government and falling behind the inflationary eight ball year after year.
.....................
I do disagree with those adjustments being reflected in a CPI that is used to calculate the benefits of wage earners and retirees. The U.S. government has over 40 different CPI indices – there is not one sacred calculation. There is a CPI for medical care for instance, and a CPI for services, as well as a CPI for transportation. Take your pick. But in using for retirement benefits an hedonically adjusted CPI that lowers annual price increases by as much as 1%, they take money unjustly out of Americans’ pockets.
................
I would take that assertion one step further by using the following example that strikes to the heart of the hedonic debate. Say the only product that Americans purchase and consume are bags of gumdrops – 100 to a bag that cost $1.00 per bag, with each citizen limited to 1 bag. Through the miracle of productivity, a way is found to fill each bag with 110 gumdrops that is now priced at $1.10. The government’s hedonic adjustments would now calculate that the bag really only costs $1.00 and that the CPI has not gone up. After all, each gumdrop in the bag still only costs a penny does it not? It does. But here’s the catch and the con. The price of a gumdrop hasn’t gone up, but the cost of a bag of gumdrops has. Because Americans must buy 1 bag as opposed to individual candies, their cost of living has increased by 10%. They must fork out an extra dime even though they’re getting more for their money. Now turn the gumdrops into computers, cell phones, refrigerators, etc. and you see my point. We can’t buy individual pieces of memory in a computer – we have to buy the entire package. And the package costs more whether it’s improved or not. The government’s hedonic adjustments may accurately reflect productivity increases, but they should not be part of a CPI, which is intended to depict America’s cost to live. In effect, that allows the benefits of productivity to accrue to businesses (which don’t provide adequate raises) and government (which under-compensates Social Security recipients). Holders of TIPS who are hoping to keep up with the cost of living via their “inflation protection” are disadvantaged as well. It’s a con – pure and very, very simple.
Bill Gross gerät über die Manipulation von der Fed bei der Preisinflation in Aufruhr.
Die Fed hat alle ihre Hände voll mit den Bondtradern zu tun.
Gross sollte etwas von seinem gemanagten Kapital von über $600 Milliarden in Gold anlegen.
