30-300% Inflation on Goods You Buy Since 2000

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

We're being hit with a double-whammy: Wages are under deflationary pressure, and almost everything else is exposed to inflationary pressure.

As correspondent Mark G. observed in Globalization = Permanent Instability, it's impossible to understand inflation and deflation now except in a global context.

Now that prices for commodities such as oil and grain are set on the global market, local surpluses don't push prices down. If North America has record harvests of grain, on a national basis we'd expect prices to fall as local supply exceeds local demand.
 

But since grain is tradable, i.e. it can be shipped to other markets where demand and thus prices are much higher, the price in North America reflects supply and demand everywhere on the planet, not just in North America.
 

If we put ourselves in the shoes of a farmer or grain wholesaler, this is a boon: why sell your product for 1X locally, when it fetches 2X in other countries? You'd be crazy not to put it on a boat and get double the price elsewhere.
 

As the share of the economy exposed to digitization increases, so does the share of work that can be done anywhere on the planet. When work is digitized, it is effectively commoditized, meaning that it no longer matters who performs the work or where they live.
 

If people in countries with low wages can perform the work, why on Earth would you pay double to have high-wage people do the work? It makes no sense. Taking advantage of the differences in local pay scales is called labor arbitrage, as the employer is trading on (i.e. arbitraging) two sets of prices.
 

It's not just labor that can be arbitraged: currency, interest rates, risk, environmental regulations, commodities--huge swaths of the global economy can be arbitraged.
 

The basic idea of the global carry trade is to borrow money cheaply in a currency that's weakening and use the money to buy low-risk, high-yield assets in currencies that are gaining in relative value.

It's a slam dunk arbitrage: not only does the trader earn an essentially free return (borrowing yen at 1%, for example, converting the yen to dollars and buying Treasury bonds paying 3%), but there is a bonus yield on the dollar strengthening against the yen: a two-fer return.
 

Global labor is in over-supply--one reason why wages in the U.S. have been declining in real terms, i.e. when inflation is factored in. The better description is purchasing power: how much can your paycheck buy?
 

Here is a chart reflecting the decline in purchasing power of U.S. earnings since 2006:
 

Courtesy of David Stockman, here is a chart of inflation (i.e. loss of purchasing power) since 2000:
 

Whatever isn't tradable can skyrocket in cost because, well, it can--since there's little competition in healthcare and school districts, both of which operate as quasi-monopolies, school administrators can skim $600,000 a year: Fired school leaders get big payouts:
 

A former Union City, CA superintendent took home more than $600,000 last year, making her the top earner on a new online database tracking salary and benefit information for California public school employees.
 

Since healthcare is only tradable at the margins, for example, medical tourism, where Americans travel abroad to take advantage of treatments that are 20% the cost of the same care in the U.S., healthcare costs can rise 500% when measured as a percentage of wages devoted to healthcare:
 

Note that this doesn't mean that healthcare costs rose along with wages--it means a larger share of our earnings is going to healthcare than ever before. Other than a brief period in the 1990s when productivity gains drove wages higher, healthcare costs have risen faster than earnings every decade. The consequence is simple: the more of our earnings that go to healthcare, the less there is for savings, investments and other spending.
 

In a way, we're being hit with a double-whammy: whatever can't be traded, such as the local school district and hospital, can charge outrageous fees and pay insiders outrageous sums for gross incompetence, while whatever can be traded can go up in price based on demand and currency fluctuations elsewhere.
 

Meanwhile, as labor is in over-supply virtually everywhere, wages are declining when measured in purchasing power. Wages are under deflationary pressure, and almost everything else is exposed to inflationary pressure. No wonder we feel poorer: most of are poorer.

re: inflation, #auditthefed, #ENDTHEFED

USA Real-World Middle Class Tax rate is Whopping 75%: Including College Tuition and Healthcare Insurance

Posted on February 3, 2014 by Charles Hugh Smith — 7 Comments ↓

It is not coincidence that these two unofficial taxes–healthcare and college tuition–are soaring in cost, outpacing all other household expenses.

I have long argued that to make an apples-to-apples comparison of real tax rates in the U.S. and other equivalently developed advanced democracies, we have to include two enormous expenses that are funded by the central state in countries such as Denmark and France: healthcare and college tuition/fees.

In The Real-World Middle Class Tax Rate: 75% (July 5, 2012), I estimated that healthcare insurance (if paid out of gross income, as we self-employed workers do) in the U.S. is roughly equivalent to a 15% tax.

Now that the Orwellian-named Affordable Care Act (ACA) is raising costs and deductibles, the true cost of healthcare (a.k.a. sickcare, because being chronically sick is so darned profitable for the cartels) is more like 20% in America.

Correspondent Tim L. (whose daughter is attending a prestigious STEM–science, technology, engineering, math–university) recently called $40-$50,000 per year college tuition what it really is: a tax:

College tuition is just another tax. If you can afford to pay it, you have to. If you cannot, you do not. Anytime you have to pay more for something because you can, you are paying a tax. Between traditional taxes, the college tuition tax, and the health insurance tax (also paid only by those who can afford to), I figure this year and the next three I’m in a 100+% tax bracket.

Middle-class Scandinavians famously pay around 65% to 75% of their gross incomes in taxes, but these taxes fund national healthcare for all and nearly free college tuition and fees. Add $200,000 (four years of tuition/fees at $50,000/year) in tax to the already-high U.S. real tax rate, and the real tax rate for middle-class households exceeds 100% of gross income.

Since only those with significant savings can possibly afford to pay a $200,000 tuition tax, the average-income household is left with one choice: the debt-serfdom of student loans. This is the acme of a morally bankrupt system of higher education: you need a college degree to have any hope of succeeding in America, but the only way to get that degree is to enter debt servitude, with no guarantees of future income needed to pay off the debt.

It is not coincidence that these two unofficial taxes–healthcare and college tuition–are soaring in cost, outpacing all other household expenses. The only other household item that is skyrocketing is debt:

The two unofficial taxes–paid by debt, either student loans, or Federal deficits– have no restraints: if you can’t pay, then the upper-middle class taxpayers who are paying most of the Federal tax will, one way or another:

Meanwhile, guess what’s been flat to down for the past 40 years–yup, the earned income of the bottom 90%:

With an unofficial tax rate for healthcare and college tuition that makes Scandinavian countries look like low-tax havens, no wonder the middle class in America is vanishing like mist in Death Valley. The political class is now bleating about the erosion of the middle class and rising wealth inequality. There are two primary sources of rising inequality in America: the Federal Reserve and the higher-education and healthcare cartels that so generously fund the campaigns of the bleating politicos.

Read more at http://www.maxkeiser.com/2014/02/our-two-most-onerous-taxes-college-tuition-and-healthcare-insurance/#FA8kfk8svFh7PJRW.99

Federal Reserve is Desheeting Your Dollar into Worthless Toilet Paper #GlassSteagall #EndtheFed

When you feel as if your dollar doesn't go as far as it used to, remember the Federal Reserve prints money out of thin air and their charter member, primary dealer pals who own the Fed, are reducing your purchasing power.

Yet another reason to Reinstate #GlassSteagall and #EndtheFed.

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

While workers in the upper income categories, those who don’t have to worry about the price of toilet paper, have seen their incomes rise sharply over the years, the rest have been in a long downward spiral. To take just one measure: median household income, adjusted for inflation, has dropped 7.8% since 2000 (chart). The drop has been steeper for the lower income categories. These are the folks who do worry about the price of toilet paper. And for them, Kimberly-Clark Corp. and other tissue makers have a special strategy: “Desheeting.”

A word that top executives of personal-care conglomerates are proudly bandying about because it speaks of their corporate spirit of relentless innovation. And it cropped up during Kimberly-Clark’s second-quarter earnings call.

CFO Mark Buthman set the scene when he extolled “organic” sales growth of a whopping 3% in the second quarter, though actual sales, at $5.267 billion, were down fractionally year over year. A continuation of a worsening trend: in 2011, sales rose 5.5%. In 2012, sales rose only 1.0%, not even keeping up with inflation – a topic that came up a lot during the earnings call. In 2013, revenues look to be even more lackadaisical.

One exasperated analyst wanted to know with regards to the healthcare division, “Why do we have four quarters in a row of negative sales growth?”

“Yes. A couple of things,” retorted CEO Tom Falk, sticking to the rule of answering hairy questions with a yes; it would bamboozle everyone into having a positive attitude about the answer. “I think everybody in the healthcare space is trying to figure that out,” he said because his company wasn’t the only one with that problem. He ascribed it to high-deductible healthcare plans that encouraged consumers to make smart decisions; and to healthcare providers that pushed for “alternate therapies” before venturing into surgery. These efforts to tamp down on ballooning healthcare costs were giving his revenue-challenged company conniptions.

Yet Kimberly-Clark continues to eke out “adjusted earnings” growth – 8% per share in the second quarter. What gives? All manner of cost cutting, product-mix changes, and that word.

“Well, we took some desheeting in the quarter,” explained Mr. Buthman. The company was reducing the sheets on each roll of toilet paper and in each box of Kleenex. He called it an “innovation” that would lead to a “more positive” price. At the same time, volume, which the company counted in thousands of sheets, would decline. “Which net net, for us, works out to be a positive,” he said.

Citing the improved Cottonelle toilet paper line, he told an analyst, “It’s a great product, great category, growing rapidly. We will have to get you some, Connie, to try it.”

His strategy: “identifying and delivering cost savings in areas that our consumers and customers don’t care about....”

Because it’s tough out there. No revenue growth. Input prices that are increasing. Customers who can’t afford price increases. “Adjusted earnings” that have to increase. Solution: desheeting – rolls and boxes with fewer sheets. Consumers “don’t care about” that because they’re not supposed to notice.

Part of the innovation is to fluff up the tissue without adding more materials – 15% “bulkier,” it said on a box of Kleenex that had 13% fewer sheets in it, the Wall Street Journal discovered. In the Cottonelle line, sheet counts dropped by 5.7% to 9.6%. Fewer but fluffed up sheets, lower input costs for the company, and consumers who “don’t care about” that. A perfect solution – and a variation on an ancient theme – for hiding hefty price increases.

Other tissue makers are doing it too. They’re cutting the number of sheets per roll or box, they cutting the size of the sheets, and they’re fluffing up sheets to give consumers, as Mr. Buthman explained so eloquently in an interview, a “better, stronger, tissue so that you need fewer sheets to get the job done.”

But the math of getting “the job done” doesn’t quite work out that way. If someone for a particular “job” normally uses two sheets, he isn’t going to suddenly use 1.95 sheets for the same job to compensate for a 5% cut in sheet count, regardless of how fluffy and improved that innovative sheet may be. He’s going to use two sheets as before, and he’s going to buy more rolls and spend more money. If Kimberly-Clark’s cost-cutting and pricing strategy is working, he’ll never notice, though he might start wondering after a while where all his money is going.

Kimberly-Clark knows where his money is going. It’s propping up “adjusted earnings.” This is the high art of marketing to consumers who have been pauperized in small, nearly unnoticeable increments by over a decade of wage increases – for the lucky ones – that haven’t kept up with what the Fed is so passionate about creating: moderate inflation.

But the Fed has a problem. Foreigners have been big buyers of Treasuries. That buying collapsed during the financial crisis. Now, worried foreigners are once again bailing out. So far, the Fed has been picking up the slack. But what if the Fed were to “taper” those purchases, and long-term rates were to jump? Read....  Rising US Interest Rates Could Create An Economic Death Cycle. So Can The Fed Actually Taper QE?

Tweets about "#glasssteagall"

Inflation is MUCH higher than reported by government!

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Purchasing power and exposure to real costs are more realistic measures of inflation than the consumer price index.

 

That the official rate of inflation doesn't reflect reality is easily intuited by anyone paying college tuition and healthcare out of pocket. The debate over the accuracy of the official consumer price index (CPI) and personal consumption expenditures (PCE--the so-called core rate of inflation) has raged for years, with no resolution in sight.

 

The CPI calculates inflation based on the prices of a basket of goods and services that are adjusted by hedonics, i.e. improvements that are not reflected in the price of the goods. Housing costs are largely calculated on equivalent rent, i.e. what homeowners reckon they would pay if they were renting their house.

 

The CPI attempts to measure the relative weight of each component:

 

 

Many argue that these weightings skew the CPI lower, as do hedonic adjustments. The motivation for this skew is transparent: since the government increases Social Security benefits and Federal employees' pay annually to keep up with inflation (the cost of living allowance or COLA), a low rate of inflation keeps these increases modest.

 

Over time, an artificially low CPI/COLA lowers government expenditures (and deficits, provided tax revenues rise at rates above official inflation).

 

Those claiming the weighting is accurate face a blizzard of legitimate questions. For example, if healthcare is 18% of the U.S. GDP, i.e. 18 cents of every dollar goes to healthcare, then how can a mere 7% wedge of the CPI devoted to healthcare be remotely accurate?

 

Those claiming that the CPI is more or less accurate point to the inflation rate posted by The Billion Prices Project @MIT as real-world evidence. The Billion Prices Project collects real-world prices from online retailers for thousands of goods. The Project's rate of annual inflation closely tracks the official CPI, though recently it has diverged, climbing above 2.5% annually while the CPI is below 1.5%.

 

The fatal flaw in The Billion Prices Project is that it does not track the real-world cost of big-ticket services such as healthcare or tuition that dominate household budgets for those who have to pay for these services.

 

Those claiming the CPI grossly underestimates inflation often compare the current CPI with the CPI methodology of the 1980s. Using the old methodology, inflation is more like 9% rather than 1.5%.

 

Critics of this comparison claim the old methodologies were flawed and the new method is statistically superior.

 

Another way to track inflation is via households' actual spending as reflected in their budgets. Intuit collects anonymous spending data from 2 million users of Mint.com and posts the results: Presenting Inflation... the rise in expenses 2011 - 2013 (Zero Hedge). This data suggests the cost of daycare, healthcare insurance, kids' activities and tuition have skyrocketed in the past few years, making a mockery of the official annual inflation rate of 1.5% to 2%.

 

Chartist Doug Short recently published this graph plotting college tuition, medical care and the cost of a new car. According to the Bureau of Labor Statistics Inflation Calculator, $1 in 1980 = $2.83 in 2013. For example, the average cost of a new car in 1980 was $7,200, so the inflation-adjusted price in 2013 would be $20,376. The actual average price today is around $31,000, so after adjusting for inflation the current average price of a new car is higher than in 1980.

 

This chart reflects the real increases in cost:

 

 

In my analysis, the debate over inflation misses two key points. What really matters is not the rate of inflation, which can be endlessly debated, but the purchasing power of earned income, i.e. wages.

 

Instead of fruitlessly arguing over hedonic adjustments and the weighting of components, we should ask: how many hours of labor (at the average hourly rate for full-time workers) does it take to buy a loaf of bread, a new car, a gallon of gasoline, a new TV, a new house, college tuition and fees, etc., and compare that to how many hours of labor it took to buy all those goods and services in the past.

 

This methodology eliminates hedonics (i.e. the computer you buy today is much faster than the one you bought 10 years ago), as this adjustment plays no part in the actual costs of manufacture or the consumer's decision: we don't have a choice to buy a computer with 1990-era specs, so the hedonic adjustment is merely a tool for gaming the CPI.

 

We should also recognize that the experience of inflation differs in each economic class. Government employees who pay a small percentage of their real healthcare insurance costs (or none at all) will experience little of the actual inflation in healthcare costs; it's the government agencies that are exposed to the real costs of healthcare insurance, which is why municipalities and agencies exposed to the skyrocketing costs of healthcare insurance are under financial pressure.

 

A retiree is naturally focused on the out-of-pocket share of medication costs; the soaring cost of college tuition is so remote it might as well be occurring on Mars.

 

Consider this real-world example. Let's say a household earning $60,000 a year (median household income is around $50,000) is suddenly exposed to the real cost of rising healthcare insurance. Maybe the primary wage earner lost the job that provided health coverage and now has to pay the full costs out of pocket as a contract worker.

 

In any event, their healthcare insurance now costs $500 more per month than it did last year. (By happenstance, this is how much my own healthcare insurance costs have risen since 2008.) This $500/month means the household is paying $6,000 or 10% of its gross income more for the same coverage it received last year. The household's annual rate of inflation just from healthcare costs is 12%, since net income is closer to $50,000 and the $6,000 in extra spending isn't buying any new good or service.

 

Let's say the household is paying $500 more per month for healthcare insurance than it was five years ago. That works out to an annual rate of 2.4% just from healthcare insurance inflation alone. Any other increases in costs would push that rate higher.

 

In other words, those households with zero exposure to college tuition and the full costs of daycare, medical care and healthcare insurance may well experience low inflation, while the household paying the full costs of daycare, college tuition and healthcare insurance will experience soaring inflation.

 

If we analyze inflation by purchasing power (which declines as real income stagnates and prices rise) and by exposure to real costs, we find the incomes of the upper 5% have typically outpaced CPI inflation, so the purchasing power of the high-income family has not suffered (unless of course they have no healthcare insurance and they have to pay the full real costs of a medical crisis. In that case they might be bankrupt.)

 

Households that receive multiple government subsidies and direct payments have little exposure to healthcare, since they are covered by Medicaid, and modest exposure to housing if they receive Section 8 benefits. Retirees on Medicare also have limited exposure to the real-world costs of their care paid by the government.

 

If we analyze inflation by these two metrics, we find the middle class is increasingly exposed to skyrocketing real-world prices. Pundits in the top 5% have the luxury of pontificating on the accuracy of the CPI while those protected by government subsidies and coverage have the luxury of wondering what all the fuss is about. Only those 100% exposed to the real costs experience the full fury of actual inflation.

Developing Economies Fight Anglo Inflation

Every time the US or EU or Chinese or UK central bank reduces the interest rate, they are purportedly trying to stimulate the economy.  Instead they are giving nearly interest free loans to banks so they can stay afloat.  Meanwhile those banks are NOT lending that money back out to consumers and businesses.  They are counting it as deposits which improves their reserve ratios, AND they are betting on every kind of security, asset, and gambling opportunity they can find, in order to maintain the appearance of legitimate enterprise and capitalism.

Here is an example of Brazil fighting inflation June 8, 2011:

Policymakers voted unanimously to raise the so-called Selic rate to 12.25 percent from 12 percent, a move all 21 economists in a Reuters survey expected.
In a statement that was nearly identical to that of its April rate hike, the bank said it had weighed risks to inflation and the still uncertain signs as to what extent Brazil's economic boom is slowing.
The bank said that, as a result, it believed that the "most adequate strategy" to bring inflation back down to the center of its target range next year was tight monetary policy "for a sufficiently prolonged period."
Keeping that phrase "makes it understood that the central bank is really going after the inflation target, at least in 2012, and that we can expect another rate hike in July," said Clodoir Vieira, the chief economist at the Souza Barros brokerage.
While monthly inflation is slowing after a surge on higher commodity prices and strong demand, 12-month inflation remains above the upper limit of the government's target, reaching 6.55 percent in May.
Central Bank President Alexandre Tombini has said the bank's policymakers are committed to ending the year with inflation as close as possible to the government target of 4.5 percent, plus or minus two percentage points.
Strong inflation puts Brazil among a group of powerhouse emerging markets, such as China and India, that are raising interest rates to try to control the price pressures that come with brisk growth.
In contrast, many developed markets, including the United States, find themselves trying to boost anemic growth by keeping interest rates ultra-low.

Fed Secretly Gives $26 Trillion to Global Cartel That Rule the World

Look at this chart on consumer price inflation (USD Devaluation) 

So how did that happen?  Check the Congressman Alan Grayson’s summary of the Fed Audit of just 6 months of activity.   Could this be related?  

The total lending for the Fed’s “broad-based emergency programs” was more than $16 trillion. The four largest recipients, Citigroup, Morgan Stanley, Merrill Lynch and Bank of America, received more than a trillion dollars each. 

The 5th largest recipient was Barclays PLC. The 8th was the Royal Bank of Scotland Group, PLC. The 9th was Deutsche Bank AG. The 10th was UBS AG. These four institutions each got between a quarter of a trillion and a trillion dollars. None of them is an American bank.

another $10,057,000,000,000 in “currency swaps.” - the Fed handed dollars to foreign central banks, no strings attached, to fund bailouts in other countries….

...together, totaled more than $26 trillion. ... more than 7 years of federal spending — on the military, Social Security, Medicare, Medicaid, interest on the debt, and everything else. And around twice America’s total GNP….

Is there any possibility that an additional $26 trillion dollars floating around the world would cause inflation?  ABSOUTELY!

Now Read this - the capitalist network that runs the world http://bit.ly/onkFR2  - See any of the same companies? 

The top 50 of the 147 superconnected companies

1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
4. AXA
5. State Street Corporation
6. JP Morgan Chase & Co 
7. Legal & General Group plc 
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & Co Inc 
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp
17. Natixis
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
21. Morgan Stanley
22. Mitsubishi UFJ Financial Group Inc
23. Northern Trust Corporation
24. Société Générale
25. Bank of America Corporation
26. Lloyds TSB Group plc 
27. Invesco plc
28. Allianz SE 29. TIAA 
30. Old Mutual Public Limited Company
31. Aviva plc 
32. Schroders plc
33. Dodge & Cox
34. Lehman Brothers Holdings Inc*
35. Sun Life Financial Inc
36. Standard Life plc
37. CNCE
38. Nomura Holdings Inc
39. The Depository Trust Company 
40. Massachusetts Mutual Life Insurance 
41. ING Groep NV 
42. Brandes Investment Partners LP 
43. Unicredito Italiano SPA 
44. Deposit Insurance Corporation of Japan 
45. Vereniging Aegon 
46. BNP Paribas 
47. Affiliated Managers Group Inc 
48. Resona Holdings Inc 
49. Capital Group International Inc 
50. China Petrochemical Group Company

* Lehman still existed in the 2007 dataset used

With leverage everything grows and declines proportionally.  That’s why the global market was going to crash and they had to be bailed out.  Because they OWN PRACTICALLY EVERYTHING!

Obama Clearly Works for the Banks, Not the People #ows

The Obama healthcare plan did not address the costs, it simply expanded coverage to more people.  Arguably better than what we had before.  However, the true cost increases to healthcare are in medical liability insurance, super leveraged medical institutions increasing the price of service with new technology, the cost of real estate for hospitals and clinics, the cost of drugs to treat, and the big one is the 30-40% administrative overhead created by the PPO processes.

The banking regulations have yet to put any prominent bankers in jail for FRAUD.  Sidelines folks such as Bernie Madoff could no longer be ignored.

The HAMP and homeowners refinancing plans allow homeowners who are underwater to REFINANCE, creating additional interest charges and INCREASING the overall cost of the home.  This way the banks don't have to take writedowns.  With no prospects for growth in the economy, the value of the homes will not grow in the near future so what's the point of owning? At the same time the mortgage interest deduction is slated for elimination.

The student loan deal actually took the banks out of education costs so that was good for us, but what about the trillion dollar education debt bubble that is ALREADY out there.  With no prospects for growth, jobs are slim, but student debt cannot be avoided.

Can anyone point to ANY Obama legislation that actually REDUCED the debt burden or inflationary burden the American middle class is facing?

True Inflation on pre-1982 method

The Consumer Price Index: Headline and Core CPI

Collapse of Industrialized World

This is a great film that should be understood by most and should not be construed as the liberal media agenda. National Geographic should be a trusted source of what's going on in the world.

Clipped from movies.netflix.com

National Geographic: Collapse

This National Geographic production looks ahead to a bleak hypothetical future, in which our civilization has completely collapsed. In the year 2210, a team of scientists set out to learn exactly what took down our seemingly indestructible society. Did we make the same mistakes the Romans, Incas and Mayans did that led to the collapse of their empires, or did a whole new set of circumstances lead to our downfall? Read more at movies.netflix.com

 

Inflation is MUCH Higher than we r told

It seems that Reagan and his administration did a swell job of destroying the nation and fooling at the same time.

Clipped from www.shadowstats.com

Alternate Inflation Charts

See more at www.shadowstats.com