Is America Hiding Its True Inflation Rate, and Could the U.S. Be as Insolvent as Greece?

This post is an article I recently authored over on PolicyMic.com.  I was told to try and limit my articles to 500 words for editing reasons.  This obviously restricts the scope of what I’m able to cover in a single article:

CBS News recently reported that the rate of inflation, as calculated by the American Institute for Economic Research (AIER), clocked in at a whopping 8% over the past year. This number is in stark contrast to the relatively modest inflation rate of 3.1% being reported by the government’s Bureau of Labor Statistics.

The AIER calculates what they refer to as an Every Day Price Index (EPI). The EPI only looks at the cost of goods the average household buys every month and factors in only those costs which are subject to price fluctuation. For example, mortgages are typically stable over the course of a year so those numbers are ignored. They wouldn’t change unless a person moves or refinances, so they don’t act as a good measure of inflation from month to month.

Another measure of inflation comes from John Williams’ Shadow Stats. Williams calculates the consumer price index (CPI) using the same model as the government did prior to 1990. Williams also calculates the CPI using the same model as the government did prior to 1980. In each case, the government changed the way it calculated inflation in order to give the appearance of less inflation.

If we calculate the inflation rate the exact same way the government did prior to 1990, the inflation rate is averaging around 6.5%, which is basically double the official rate. However, if we measure inflation the same way the government did back prior to 1980, the inflation rate clocks in at a mind-numbing 11%.

In the current official model, the state makes widespread use of hedonics and substitution to hide real inflation rates. It must do so in order to keep the interest it pays on Treasury Inflation-Protected Securities (TIPS) and Social Security cost of living adjustments low. If the government used real consumer inflation rates, it would become readily apparent that the U.S. is completely insolvent in much the same way Greece is insolvent today.

If other nations should catch on to this, they would begin dumping U.S. treasuries in order to protect themselves from a U.S. default, the same situation Greece is facing today. People don’t want to hold Greek debt because they fear they will not be paid back with money that has any value. In other words, they fear that the Greek state will simply print money to make the interest payments.

It appears that this situation may already be taking place with some major U.S. creditors. The Chinese have dumped over $100 billion worth of U.S. treasuries in the month of December, which is a continuation of a trend that has been going on since April of 2011. Chinese holdings of U.S. treasuries are down $300 billion since April of 2011.

This creates a dangerous situation for inflation. If enough governments dump U.S. treasuries because they fear the U.S. is insolvent, the interest rates will skyrocket unless the Fed prints the money to buy those bonds. However, if the Fed buys the bonds, domestic inflation rates will skyrocket.

  • http://celebrity-smack.com Celebrity Smack

    If we keep voting in people like Obama, there is no question that money will be printed, since inflation tax remains below the radar of most voters. The only way to have any chance at a Libertarian president is for our voting system to change: 
    http://www.openstv.org/

    • dpalme

      Abolishing the entire state would do even better.

      • http://celebrity-smack.com Celebrity Smack

        Discussing nonviable ideas is not especially helpful. Hence my opposition to writing in Ron Paul. We need to make decisions based on reality. Liberals will destroy this country much more quickly than conservatives, and yet here we are. Obama is president, and will be again if idealists stand on principle alone, which in the end is no principle at all.

        • dpalme

          I agree Ron would help a lot. But this economic downfall is a product of the state. Abolishing it and having a truly free market would solve a lot.

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  • Pingback: This post is an article I recently authored over on PolicyMic.com.  I was told to try and limit my articles to 500 words for editing reasons.  This obviously restricts the scope of what I’m able to cover in a single article: CBS News recently reporte()

  • http://www.facebook.com/people/Richard-K-Price/100000087011487 Richard K Price

    As long as corporations run our government Americans haven’t seen anything yet. Greedy bankers created the debt, banks are responsible for the great depression. Banks are responsible for the current downfall of our entire economic system. If you get rid of banks, and get corporations out of politics you will be free of the massive debt. I just need a service to pass me the cash. A machine will do just fine. Get rid of banks. I am finding Pay-Pal to be a great alternative. This is also what happens when a cash rich corporation manages to get their greedy politicians elected and are able to buy their very own own laws. We all lose. Americans have become merely a subjugated working stock to support a massive corporate police state. A simple A.T.M. machine is fine. It doesn’t even need a huge building with a vault attached.