Officially, the inflation rate in the USA is only 1–2 percent. However, alternative price indices calculate 8–10 percent. Has the US government manipulated the value benchmark for the world’s most important currency? Is it only an illusion that the USA has overcome the crisis of the early 2000s? And what does this mean for the rest of the world? A look at a scandal shows why we need a decentralized alternative to a rotting monetary system.
In the Middle Ages, “inflation” was considered one of the great plagues that tormented people in the vale of tears of earthly life. Today, inflation is called inflation, but people still mean the same thing: the increase in the prices of services and goods.
In everyday life, this is apparently easy to observe. A year ago, noodles cost so much, and in those days, you paid 3 marks for a kebab, and so on. But it is much more difficult to put inflation into economic terms. Usually, one refers to a basket of goods and services that is considered typical for everyday consumption and observes how its price has changed in the course of a year. The difference is the inflation rate. This is currently officially less than one percent in both the USA and the EU.
Unofficially, it is no longer a secret that the matter is not quite so clear-cut. A report by the Devonshire Research Group, which informs investors through analysis, questions the official inflation rate and compares it with alternative perspectives that calculate significantly higher inflation.
The report begins with the First World War. During this period, prices in the United States rose rapidly, and to find out how to adjust wages. The government defined a “Consumer Price Index” (CPI). This index is intended to indicate the impact of price increases on the standard of living.
A CPI includes a basket of relevant goods and a mathematical formula for weighting them and deriving an inflation number from the prices. The CPI is based on numerous design decisions for which there is no objective “right!” but only weighing advantages and disadvantages. How to compose the shopping cart? How do you calculate changes? What role does the control of the consumer play, who adjusts his purchase decisions to the prices? And so on.
As always, when there is no objective truth but only subjective views, this makes the CPI a plaything of interests. Less than scientific reality, the tug-of-war is determined between the powers that be for the sovereign interpretation of reality. Critics of the official inflation calculation have therefore long complained that the government changes the formula of the CPI at its discretion when it has an advantage.
For example, the price index rose 12 percent in 1983. That would have been decent inflation, but it is not found in any official statistics. This is because the government has changed the calculation of the index. The reason why it has done this is perfidious, and shows how toxic incentives affect the CPI:
The higher the inflation, the higher the wages the government has to pay its employees. If inflation is lower, public sector employees have fewer arguments in salary negotiations. According to a 1995 calculation, the government should save $634 billion over the next ten years by “correcting” the CPI. A year later, the index was “adjusted” and again in the following years until 2000. Each of these changes slightly reduced the inflation rate.
It is easy to produce the desired truth when you are the one who determines the formula that measures reality. The US government wants low inflation — so inflation is low. It has fluctuated around 3 percent over the last few decades, which is okay, while the economy is growing decently. Officially, this means that the citizens of the USA are becoming increasingly wealthy.
Some economists are now questioning this official version of history and trying to bring the real price increase to light.
Devonshire analysts present several alternative price indices: The Shadowstats index since 2006, the Chapwood index since 2012, and the CPPI, which calculates price changes back to 1983. But what makes these indices different?
The Chapwood Index claims to be the first to “determine the true cost of the percentage increase in the cost of living.” To do this, researchers have collected data on more than 4,000 products and services across the country over a period of years to find out what people spend their money on in their everyday lives. They selected the 500 most important of these goods to calculate an index that shows inflation for regions and cities in the USA.
The Shadowstats Index, on the other hand, draws on data from the official basket of goods but corrects the government’s methodological changes by using formulas from 1980 to 1990. The CPPI also uses the official CPI but modifies it to come closer to the actual price increase.
What is the result when we look at the price increase through alternative models? They all end up with significantly higher inflation. While the government indicates inflation rates of 1–2 percent — in some cases even less — for the last six years, the CPPI comes to 4–5 percent. The Shadowstats even calculates 8–10 percent, and the Chapwood Index — perhaps the most thorough and independent method — tends to be 10–12 percent, depending on the region. The report combines these three alternatives to determine an inflation rate of around 8 percent.
You have to pause for a moment to understand what this actually means. The richest and most powerful country in the world has possibly had an inflation rate of 8, if not 10 percent, for at least 5 years, if not decades.
The consequences are enormous. For example, for Americans’ prosperity: Officially, prices are said to have doubled since the late 1980s and increased by 47 percent since the late 1990s. Thanks to the wage increases since then, most citizens’ purchasing power has remained stable or increased. Looking at the alternative indices, purchasing power would have fallen by a factor of 5–20 since 1970. The citizens have become continuously poorer. This could explain why it is becoming increasingly difficult for many Americans to pay for their accustomed lifestyle. The quality of life is declining, and debt is rising.
According to the paper, the USA has never overcome the recession of the early 2000s. While the official story tells of growth, the alternative indices show no growth, only the ongoing destruction of purchasing power. The narrative of the recovery from the crisis is a legend.
The perspective on investments is also changing fundamentally. If one assumes an inflation rate of 8 percent, one effectively loses purchasing power if one receives less interest. Interest rates of 2–4 percent on dollars — which is relatively high — destroy values, as do the five percent typical for funds and real estate. Even if you get “unrealistic” interest rates of ten percent or more, you do not gain much.
You have to get, so to speak, already perfect conditions, so that the risk of keeping dollars is worthwhile.
Can these results also be applied to the Euro? I am not sure here. As already described, there are alternative baskets of goods and price indices for the Eurozone, which come to the rather depressing conclusion that German citizens can afford less measure on the Wies’n today than in the 50s and 70s.
Of course, it would also be conceivable that the standard of living in the eurozone is now much higher than that in the USA compared to the official figures. But it would also be just as conceivable that the shopping basket in the eurozone is also being misused to hide the true inflation figures, for example, to prevent public service unions from having arguments for (even stronger) wage increases.
To make matters worse, the dollar is not just any currency — it is the world currency, so to speak. The dollar is synonymous with the currency: the money needed in almost every place in the world to import goods from abroad. When the currency collapses somewhere in Venezuela or Zimbabwe, the dollar is used as a matter of course; even in Nigeria, where the currency merely fluctuates, a black market for the dollar is created. The dollar is used globally to determine the values of other currencies.
What if the purchasing power of this fundamental measure of value has been manipulated by the U.S. government, deliberately, and to disguise the fact that the measure itself is about to collapse? What does this say about the global monetary system?
Probably one thing above all: it is time to find the exit from the rotting system. Fortunately, it already exists.
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