International Forecaster Weekly

Money Addictions

Spending money you do not have is an addiction just like alcohol and drugs.

Bob Chapman | April 23, 2004

As you are well aware by now the CPI does not accurately measure consumer prices due to the imposition of hedonic pricing. It should reflect annual inflation of over 8%. Not only is it used to deceive the public and investors, it is all used to cheat Social Security retirees, pensioners and those on Medicare and Medicaid. That is because politicians cannot keep the promises they have made to constituents. This is all simply a fraud. This leads to the fraud of the productivity miracle and it serves to assist in suppression of interest rates. The way CPI inflation is expressed has profound implications for every American, particularly retirees and probably is the greatest fraud ever perpetrated on the American people. As house prices climb to stratospheric heights CPI only assumes that everyone rents. Rents have declined in a number of major cities 4 to 6 percent and that is what is picked up in the CPI, not housing prices. Rents are lower because government has arranged for Fannie Mae and Freddie Mac to give houses away to those who cannot afford the mortgage payments. That is ok, because when a couple of payments are missed they are tacked onto the end of the loan. That gives the fraud additional life. The use of rents, rather than house values, is very important because housing makes up 32% of the CPI. Rents are totally irrelevant when 69% of Americans own their own homes. This concept of course defies logic, which has been a common occurrence in Washington for many years. In furtherance of this fraud, the BLS at the request of the Bush neo cons wants to implement an Expenditure-Chain Weighted Index based on partial usage of a product or service. They also want to change the weighting as prices change. They, of course, want to add in substitution. Weightings on expensive items fall and those on cheaper items rise. This substitution would of course cause the CPI to reflect lower prices. In addition, a lower CPI allows for lower interest rates, again cheating the public and particularly retirees who receive next to nothing for their savings, again lowering their income. You should let your elected representatives know that you know that you are being cheated and if something is not done to change it, they will not be there for the next term.

Yet, another cover up begins. Elitist Paul Volcker, former Chairman of the Fed, will probably head the special commission set up to investigate the giant Iraq-oil-for-food scandal. Saddam Hussein made over $10 billion through illegal oil deals of which some $2 to $3 billion was kicked back to the Kofi Annan family. The investigation will last for years, the money won’t be returned and no one will go to jail.

Spending money you do not have is an addiction just like alcohol and drugs. Americans are making less and spending more as thousands of jobs are outsourced every day. Can you imagine retail sales rising 1.8% in one month? What happens when interest rates rise and you cannot get any more money out of your perpetual money machine, your home? Well, you know the answer and that event is close at hand. As interest rates rise and capital dries up, the Fed will use its other devices to keep the economy afloat and they have already begun in anticipation of higher rates. Over the past month, M-3 has shot up $100 billion. Annualized that is over $1.2 trillion a year. This is the only alternative left to the fed and they will use the creation of money and credit until we have an inflationary blow off. That also means the dollar will fall even though interest rates have been increased. Markets still do not see the inflationary implications. We do and if you own bonds or bond funds sell them. They are going down in value. In addition, asset inflation will spill over from commodities into goods and services, which will front run price inflation in a second stage. What you see now that few are able to see is that inflation will come in at least two waves. The accompanying flood of money and credit will not keep interest rates from rising further. Bonds, stocks and real estate will fall along with the dollar. At this point all currencies will fall against gold. All these tactics will not increase growth; they will just temporarily stave off the inevitable again. We will have 1923 in Weimer Germany again. The war is also finally affecting the stock market. Deaths rise every day, it is a Vietnam type quagmire, and more troops are being sent in as John Kerry calls for a draft. The negatives are all there. Take advantage of them.