Bernanke’s BS Bounce

Yay, more free money!

Oh not for you (unless you are a banker) but for all of Ben’s best buddies as the Fed Chairman promised yesterday to maintain “exceptionally low levels of the federal funds rate for an extended period.”  He can do this because, according to Bernanke:

Increases in energy prices resulted in a pickup in consumer price inflation in the second half of last year, but oil prices have flattened out over recent months, and most indicators suggest that inflation likely will be subdued for some time. Slack in labor and product markets has reduced wage and price pressures in most markets, and sharp increases in productivity have further reduced producers’ unit labor costs. The cost of shelter, which receives a heavy weight in consumer price indexes, is rising very slowly, reflecting high vacancy rates. In addition, according to most measures, longer-term inflation expectations have remained relatively stable.. the range that most FOMC participants judge to be consistent with the Federal Reserve’s dual mandate of price stability and maximum employment.

See!  I bet you didn’t realize how well things were going, did you?  Oil going from $70 to $80 in 15 days isn’t inflation – it’s SUBDUED!  Up from $37 last February and March – SUBDUED – As in, DUDE, where’s my money???

I mean come on people – he says it right here in one of the early paragraphs(before people start to nod off) – the cost of shelter (i.e. your home’s declining value)is heavily weighted in the CPI and since your home is worth less (worthless?) and will remain so for some time – that offsets all the other nasty inflation that is eating into your paycheck.

Aside from the fact that this assumes your home is something you will be buying at a discount TOMORROW as opposed to something you overpaid for yesterday, the whole measurement that Bernanke uses to define success is ridiculous.  Housing makes up 42.7% of the CPI, Transportation makes up 17%, Food makes up 15% Medical Care is 6% and Clothing is 3.7%.  That’s 85.4% so we’ll call “other” 14.6%.

Now, let’s say you, like most Americans, already own your home.  That means what you pay on a monthly basis doesn’t change.  Let’s say though, that the cost of Transportation goes up 20% (3.4 out of 100) and Food goes up 20% (3) and Medical Care goes up 30% (1.8) and Clothing goes up 10% (0.4) – that would be an increase in the CPI of 8.6 BUT (and it’s a big but) if you are lucky enough to lose 20% of the value of your home (and we all did), that knocks 8.5 back off the CPI and PRESTO – we have “just” a 0.1% increase in CPI – PRICE STABILITY!  See, the $70,000 that dropped off the value of your home offset the $5,000 annual increase in the cost of gas, food, clothing and medicine (because $70,000 mortgages out to about $5,000 a year).

It’s one thing to sit there in front of Congress and play number games that paint over what a terrible situation the American people are in, but it’s quite another thing TO BASE OUR ECONOMIC POLICIES ON BS STATISTICS!

By the way – Do you know what percentage of the CPI is allocated to taxes?  ZERO!  Isn’t that AMAZING?  They can raise your property taxes, they can raise your school taxes, they can raise sales tax, they can raise income tax… And it doesn’t increase your CPI one bit! 

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