Everyone But Obama And Obama’s Fed Knows That Prices Are Rising Drastically

I’m from the government, and I’m here to mislead you.

Sticker Shock
Niall Ferguson – Mon May 2, 3:33 am ET

NEW YORK – The Fed may deny it, but Americans know that prices are rising. In this week’s Newsweek, Niall Ferguson takes a look at the Great Inflation of the 2010s.

“I can’t eat an iPad.” This could go down in history as the line that launched the great inflation of the 2010s.

Back in March, the president of the New York Federal Reserve, William Dudley, was trying to explain to the citizens of Queens, N.Y., why they had no cause to worry about inflation. Dudley, a former chief economist at Goldman Sachs, put it this way: “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful. You have to look at the prices of all things.” Quick as a flash came a voice from the audience: “I can’t eat an iPad.”

Dudley’s boss, Ben Bernanke, was more tactful in his first-ever press conference on Wednesday of last week. But he didn’t succeed in narrowing the gap between the Fed’s view of inflation and the public’s.

I respect Bernanke. As an expert on the financial history of the 1930s, he was one of the very few people in power back in 2008 who grasped how close we were to another Great Depression. But if we’ve avoided rerunning the 1930s only to end up with a repeat of the 1970s, the public will judge him to have failed.

To ordinary Americans, however, it’s not the online price of an iPad that matters; it’s prices of food on the shelf and gasoline at the pump.

To this, the Fed has a stock response. It points to the all-urban consumer price index (CPI-U) and notes that it was up only 2.7 percent in March relative to the same month a year earlier. Strip out the costs of food and energy, and “core CPI”—the Fed’s preferred measure—is just 1.2 percent. When Google unveils its new index of online prices, it’s likely to tell a similar story.

To ordinary Americans, however, it’s not the online price of an iPad that matters; it’s prices of food on the shelf and gasoline at the pump. These, after all, are the costs they encounter most frequently. And with average gas prices hitting $3.88 a gallon last week, filling up is now twice as painful as when President Obama took office.

Sensing a threat to his hopes of reelection, the president last week called on Congress to eliminate “unwarranted” tax breaks for oil companies and set up a Justice Department task force to investigate price gouging and fraud in the oil markets. Give me a break. The spike in gas prices is the result of Fed policy, which has increased the monetary base threefold in as many years, and a geopolitical crisis in the Middle East that the president and his advisers still haven’t gotten a handle on.

And the reason the CPI is losing credibility is that, as economist John Williams tirelessly points out, it’s a bogus index. The way inflation is calculated by the Bureau of Labor Statistics has been “improved” 24 times since 1978. If the old methods were still used, the CPI would actually be 10 percent. Yes, folks, double-digit inflation is back. Pretty soon you’ll be able to figure out the real inflation rate just by moving the decimal point in the core CPI one place to the right.

It’s not only the BLS that speaks with a forked tongue. Members of the Council on Foreign Relations last week heard Treasury Secretary Tim Geithner say: “Our policy has been and will always be that a strong dollar is in the interest of the country.” Fact: the dollar has depreciated relative to other currencies by 17 percent since 2009. That European vacation is going to cost nearly a fifth more than you anticipated when you booked the flights a year ago.

I grew up in the 1970s. My first-ever publication, when I was 10, was a letter to the Glasgow Herald lamenting the soaring price of school shoes (I genuinely thought my feet were growing too fast). I wrote my Ph.D. dissertation about German hyperinflation. So perhaps I’m also hypersensitive. Maybe in June, when the Fed stops quantitative easing (its program of injecting cash by buying government bonds), inflation will recede. Maybe high fuel prices will, as Goldman Sachs predicts, slow the economy and revive the specter of deflation.

Maybe. Or maybe inflation expectations started shifting when the guy from Goldman—a Marie Antoinette for our times—seemed to say: let them eat iPads!

Niall Ferguson is a professor of history at Harvard University and a professor of business administration at Harvard Business School. He is also a senior research fellow at Jesus College, Oxford University, and a senior fellow at the Hoover Institution, Stanford University. His latest book, The Ascent of Money: A Financial History of the World, was published in November.

IPads may start looking tastier and tastier as food prices keep soaring.

Allow me to re-introduce an article which I wrote in October of last year titled “Financial Expert HOPES Inflation Will Only Be As Bad As 1970s“:

The numbers told the sad story of the Jimmy Carter presidency: interest rates of 21%; inflation at 13.5%, and an unemployment rate of 7%.  And a relatively new economic device called “the misery index” – the combination of the unemployment and inflation rates which Carter had himself used to great effect in his 1976 campaign to win election – was at a shocking 20.5%.

And those who went through those dark and difficult times may soon be looking back to that period as “the good old days.”

Welcome back, Carter.

When Ronald Reagan took office from Jimmy Carter, inflation was at a meteoric 13.3% and the country was in the throes of a fierce recession. There was a real question as to whether workers’ wages would keep up with the costs of living, which made people afraid to either spend or save. And nobody knew how to control inflation – which had risen from 1.4% in 1960 to the aforementioned 13.3% in 1980 – causing a real erosion of confidence in the future. Jimmy Carter answered a reporter’s question as to what he would do about the problem of inflation by answering, “It would be misleading for me to tell any of you that there is a solution to it.”

But Ronald Reagan had a solution.  And by the time he left office, he had solved the problem of creeping inflation increases and had actually reversed the trend: he left behind a healthy inflation rate of 4.1%.

Reagan’s policies set the trajectory for growth that would last for 20 years.

And the only thing that could truly destroy the fruit of Reagan’s policies was the coming of another Jimmy Carter.

Inflation Inevitable, Rogers Says: Could Be “Much Worse” Than the 1970s
Posted Oct 12, 2009

Given the Fed’s extremely easy policies, runaway government spending and shortages of many commodities, inflation pressures are building and destined to get much worse, according to famed investor Jim Rogers of Rogers Holdings.

“The Federal Reserve has laid the groundwork for some serious inflation down the road by printing all this money,” Rogers says. “So have many other central banks.”

Although “the U.S. government lies about inflation” in its official data, inflationary pressures are already evident in nearly everything, excluding energy, Rogers says. Inflation is “going to continue, going to accelerate,” he says. “We’re going to be paying more for just about everything down the road.”

Asked if he foresees a 1970s-style stagflation period ahead, Rogers chuckled and gave an ominous reply: “I hope it’s that good. It might be much, much worse.”

Given that view, Rogers remains very bullish on commodities as we discuss in subsequent clips.

You don’t massively increase the money supply (by running printing presses night and day) without consequences.  But that is exactly what we’ve done.  “The money supply was increased from $600 billion in 2000 to $800 billion in 2007.   This year, it has risen from $800 billion to $1.7 trillion! (Source: Federal Reserve Bank of St. Louis).”  And we aint seen nothin’ yet, as the Fed is planning a 15-fold increase in the monetary base.  Actions have consequences.  And the crazier and more irresponsible the action, the worse and more dramatic the consequences.

The National Inflation Association released a statement back in March following the passage of the massive $3.27 trillion stimulus porker:

“The United States today is in a short-term deflationary phase caused by forced liquidations, de-leveraging, going out of business sales, and other temporary factors.

It is our belief that the monetary policies of the Federal Reserve and United States Treasury will soon put an end to this deflationary phase, and we will see massive inflation in the U.S. that could ultimately lead to Zimbabwe-style Hyperinflation.

The U.S. has lost more than 2.8 million jobs since the passage of the stimulus bill and its promise of “shovel ready projects” that was supposed to prevent unemployment from going over 8%.  It failed to create jobs, but only massively increased our debt.

This country is going to go for a ride, and it won’t be a fun one.

And you tell me whether, going on two years later, you feel like that little girl or not.  It might be a lot better to shut your eyes – like the “grownup” and just pretend it isn’t happening; that way you’ll believe whatever reassuring pabulum the liberal Obama government and the liberal mainstream press tell you.

Tags: 1970s, dollar, food prices, gas prices, I can't eat an iPad, inflation, misery index, oil companies, prices are rising, prices at the pump, Ronald Reagan had a solution, strong dollar, the Great Inflation of the 2010s, the problem of inflation, unemployment