BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? The U. S. consumer price index continues to be a testament to the art of economic spin. Since wages, Social Security cost-of-living increases and some agency budgets are tied to it, the government has a vested interest in keeping it as low as possible. Yet your real cost of living -- what you keep after taxes, medical bills, college expenses and other household costs -- is probably much higher than the 2 percent annual rate the government reported in July, showing a slight decline. Gerald Prante, an economist with the Washington-based Tax Foundation, found that median real-estate taxes on owner - occupied housing went from $1,614 in 2005 to $1,742 last year. 'That's an increase of 7.93 percent, more than double the inflation rate in that time period,' Prante says. Medical expenses are given short shrift as well. It wasn't that long ago when employers could cover almost all of an employee's health-care bills. Now workers are shelling out an average of $3,281 from their paychecks for family medical coverage, according to the Kaiser Family Foundation, a non-profit organization based in Menlo Park, California. The average premium for a family policy is more than $12,000 annually. Since 2001, health premiums have risen 78 percent while wages have only gained 19 percent. The government's inflation measure during that stretch was 17 percent. When making goals for your portfolio returns, it's wise to avoid using the government's inflation rate as a benchmark. Aim higher. Shoot for outpacing your household's cost-of-living increase. That's the most important number to beat. When making goals for your portfolio returns, it's wise to avoid using the government's inflation rate as a benchmark. Aim higher. Shoot for outpacing your household's cost-of-living increase. That's the most important number to beat. '. It's the only way to stave off a severe consumer led recession. But eventually a severe recession will come whether anyone is ready for it or not. The Fed always wants to put off the inevitable. In the process, bubbles get bigger and bigger as everyone aiming high is willing to take on excessive risk perhaps counting on the Fed's ability to control the economy and the stock market. Federal Reserve Governor Frederic Mishkin thinks the Fed is in control. I don't. Nor does Professor Kevin Depew who was talking about the Fed's ability to stabilize prices in point number 3 of last Friday's Last night Federal Reserve Governor Frederic Mishkin gave an interesting speech at the 'Domestic Prices in an Integrated world Economy Conference' in Washington on 'Globalization, Macroeceonomic Performance, and Monetary Policy.' And 'central banks still retain the ability to control short-term interest rates, which affect the domestic cost of credit and long-term interest rates, and so can continue to do their job of stabilizing inflation and output.' Either way, the quote of the day comes near the end of his speech when he makes this astonishing claim: 'Has globalization been an important part of the story of inflation's remarkable decline in recent years? In terms of direct effects, the discussion here provides a clear-cut answer: No. Inflation has come down in the old-fashioned way. Tighter monetary policy and a commitment to price stability by central banks throughout the world have led to lower inflation and an anchoring of inflation expectations.' What's hilarious - and we mean 'hilarious' in the most cynical way possible - is that we read the Mishkin speech not 10 minutes before reading a Bloomberg article from John Wasik (CPI's Lie on Household Inflation Doesn't Wash) that noted the following: 'The U. S. consumer price index continues to be a testament to the art of economic spin.' Wasik notes that 'millions are falling behind inflation because wage increases aren't keeping pace with the cost of medical care, lost employment benefits, homeownership expenses, energy and transportation.' The seeds of long-term malinvestment and overproduction - globally - that masquerade today as ' benefits of globalization' are now beginning to wilt under central bank policy that is precisely the opposite - demonstrably - that Mishkin describes as 'tighter monetary policy and a commitment to price stability.' The opposite. For inflation to create more inflation, which seems to be what everyone is looking for these days, there must be consumers with both the desire and the ability to push forward purchases to get ahead of rising costs. The alternative is inflationary pressures that terminate at the point where appetite for credit diminishes and transitions to risk aversion. In other words, these speeches by Federal Reserve speakers congratulating themselves on successfully defeating inflation are in reality unwittingly congratulating themselves on simply being around at the very beginning of the deflationary credit contraction. the dotcom crash would not have happened, we would not be in an even bigger housing/credit bubble that is now bursting, and the dollar would not be at all time lows. Please see Wasik's advice might be suitable (or not) for someone who is 20 or 30, but the closer a person is to retirement the worse Wasik's advice becomes. Such advice ignores the possibility of a sustained stock market down turn, a severe bear market and/or a consumer led recession with rising unemployment. It took 7 years for someone in a diversified basket of S&P stocks to recover from the crash of 2000-2001. Treasuries did better without the risk. Nonetheless, I salute Wasik for pointing out the sham that the CPI is. However, it is because of the debasement of the dollar and distortions in the CPI that the Fed has practically forced risk down everyone's throat. But one must be cognizant of herding behavior that has nearly everyone thinking exactly like he is and the Fed wants. Aim high. Shoot for the moon. Do or die. You are losing money by saving. Buy assets. Only fools save. In the long term, stocks always go up. But what happens when everyone does the same thing? More to the point, what happens when everyone does the same thing for 20 years or longer? Eventually risk gets so unappreciated that various asset classes go to the moon. Consider real estate. About a year ago, the mantra was that real estate always goes up. There will Here is the big question: Is this more like 1994 or more like 1929? In other words is this a mid cycle correction or the cusp of collapse? Everyone ignores the latter possibility. Japan underwent deflation where land prices and the stock market fell for 18 years. There was no depression. Life still went on. The same scenario can happen here too, regardless of what anyone thinks. There is an amazing belief in the Fed's ability right now to control the business cycle as well as control price stability. It's not warranted. Worse yet, the same failed advice recently given for real estate (you cannot buy too much home, home prices always go up, etc.) is now being touted for stocks in the form of a recommendation to “aim high”. At this stage of the cycle in a slowing economy, with rampant overcapacity, a tenuous job climate, no real reason for businesses to expand, and increasing bullishness in the face of deteriorating fundamentals, the odds are that aiming high is precisely the wrong thing to do. The content on this site is provided as general information only and should not be taken as investment advice. 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