#131 - Luxury Prices Going down... It's a bad thing

[AlexMerced]

http://causeoffreedom.blogspot.com/


Hey Guys,

I hate economists and how they manipulate the numbers reality. I was listening to PBS Nightly Business Report and they had an economist arguing that the Core inflation rate (inflation - Gas/Food) isn't that bad cause prices of clothes and cars are going down. This is a utter distortion of the price changes going on in the economy. Here are the correct implications of what's going.

Gas/Food Prices go up - This is a bad thing, cause when the necessities of a nation go up in price it limits the discretionary spending which quickly kills a lot of businesses.

Clothes/Car Prices go down - This is a bad thing cause it reflects the drop in demand due to increasing prices in necessities.

Still, Core Inflation isn't a useless indicator since you can pinpoint the source of inflation by comparing to true inflation. If Core inflation shows that the bulk of inflation was in consumer products that would be a good indicator of a growing economy but when the bulk of inflation is in commodities/neccessities then your looking at price changes that hurt peoples baseline standard of living.

Prices change, but I guess it's more important to understand which prices changed and why, yet core inflation is increasingly becoming a tool to breed false optimism about the economy.

[Conza88]

Hmm, never put that together - like, I know the processes... but yea never thought too much about it, that clicked for me.
Thanks! :)

[AlexMerced]

Glad, the more I listen to the nightl business report, the more I'm learning about economic indicators, I really recommend listening to the daily podcast you learn a lot real quick

I honestly have probably developed a very similar fixation to understanding inflation to that of Ron Paul... thanks RP for making me an inflation nut :)

[Conza88]

Glad, the more I listen to the nightl business report, the more I'm learning about economic indicators, I really recommend listening to the daily podcast you learn a lot real quick

I think I'm getting near the end of the beginner phase, I can explain to people (best sign you know what you're talking about) properly, most of the problems in the world and why... But when it comes to the intricacy's, say in financial markets etc.. when it gets a bit technically, I'm still a little out of it.

Beginning listening to the whole Mises media collection; after someone did the same from here... but yea, you never stop learning.

Whats the business report cover? Just the US markets.. or international ones? Commentary and opinions, is it austrian economics - or, you listen to it; to 'know thy enemy' sort of thing? Cheers.

[WRellim]

http://causeoffreedom.blogspot.com/


Good post.

Note also that "car prices" would be going down because the Big 3 havd nothing but SUV's and biggum gas guzzlers in their inventories -- so if people ARE buying them they will be heavily discounted to move the inventory.

And if the price index goes according to actual sales -- then there are more likely higher sales of smaller cars (with lower prices than SUV's and biggum gas guzzlers, even though the sale price of individual small cars may actually be HIGHER than it was say 3 months ago) So even if the same number of vehicles were purchased, as an aggregate car sales dollars would be down both in total AND as an average per unit price.

Same might be true of clothing... people could be buying just as many "units" of clothing -- but may be choosing lower-priced items as a measure of frugality.


Basically its the "Hamburger vs Steak" or the "Generic vs Brand name" scenario. And it is a definite sign of recession.

Note that increased "overtime" hours are a similar indicator. The business owner MAY have actually cut back on total staff (or refuses to hire additional staff) and is willing to pay more overtime to current staff because he's hedging his bets against a future downturn. (A form of the "make do with what you got" attitude.)

[AlexMerced]

Good post.

Note also that "car prices" would be going down because the Big 3 havd nothing but SUV's and biggum gas guzzlers in their inventories -- so if people ARE buying them they will be heavily discounted to move the inventory.

And if the price index goes according to actual sales -- then there are more likely higher sales of smaller cars (with lower prices than SUV's and biggum gas guzzlers, even though the sale price of individual small cars may actually be HIGHER than it was say 3 months ago) So even if the same number of vehicles were purchased, as an aggregate car sales dollars would be down both in total AND as an average per unit price.

Same might be true of clothing... people could be buying just as many "units" of clothing -- but may be choosing lower-priced items as a measure of frugality.


Basically its the "Hamburger vs Steak" or the "Generic vs Brand name" scenario. And it is a definite sign of recession.

Note that increased "overtime" hours are a similar indicator. The business owner MAY have actually cut back on total staff (or refuses to hire additional staff) and is willing to pay more overtime to current staff because he's hedging his bets against a future downturn. (A form of the "make do with what you got" attitude.)

All good stuff, the nightly business report is pretty cut and dry, they go over the new business stories and statistics very briefly and usally have guest commentator of all sorts towards the end. It's not done from an Austrian point of view but again it's mostly just raw data with a splash of random commentary.

It's just good for keeping up with all the economic indicators and what's going on in the markets, it cover mainly US but it'll cover other ones if anything big happens like TATA motors buying jaguar.

[WRellim]

All good stuff, the nightly business report is pretty cut and dry, they go over the new business stories and statistics very briefly and usally have guest commentator of all sorts towards the end. It's not done from an Austrian point of view but again it's mostly just raw data with a splash of random commentary.

It's just good for keeping up with all the economic indicators and what's going on in the markets, it cover mainly US but it'll cover other ones if anything big happens like TATA motors buying jaguar.

Or the one I'm waiting for... TATA buying one of the Big 3 (Chrysler being the lowest hanging fruit right now, but Ford and GM are also possible.)

Heck Anheuser-Busch is on the block already... because it's a bargain right now.


People think that's "nuts" -- but I'm not so certain. Not that many years ago, Piper Aircraft corporation (one of the biggest manufacturers of single-engine and turboprop airplanes) was sold for the grand sum of $1 (not a typo... ONE DOLLAR) -- provided the "buyer" also assumed all of the potential debts from all pending lawsuits.

Something similar could happen with American automakers -- with their high pension and other obligations (denominated in dollars) hanging over their heads -- and the heavy devaluation of the dollar, it would be relatively easy for some foreign firm to come in and "Scoop it up" for what would previously be seen as "pennies on the dollar" as a bargain-buy while foreign currencies are high (and/or the lender had plenty of greenbacks that they want to "cash" out of and repatriate).

BTW, relative to things like that, we could see a pretty high rate of inflation just from that alone -- repatriated dollars. For years the Fed was able to get away with "printing" lots of dollars because a significant percentage went (literally) overseas to countries like Chile {or is it Argentina?} which actually have actually used FRN's as currency (aka we have a LOT of "kited checks" floating around the world... waiting to be cashed... if they all get cashed around the same time, we're in for a boatload of inflation, even if the Fed STOPS "printing" more).

[voytechs]

Check out my old video from Feb. on "America on Sale":

http://youtube.com/watch?v=Q3zQjeqiCtc

[HOLLYWOOD]

Here's a great link to the "GILDED AGE" which are are in the Second coming of it.

http://www.americaslibrary.gov/cgi-bin/page.cgi/jb/gilded (http://www.americaslibrary.gov/cgi-bin/page.cgi/jb/gilded)

US History repeats ITSELF!

[Bossobass]

The cost of war has skyrocketed. (not included in the CPI)

The price of a new home has skyrocketed. (not included in the CPI)

The cost of water has skyrocketed. (not included in the CPI)

The cost of gasoline has skyrocketed. (not included in the CPI)

The price of credit has skyrocketed. (not included in the CPI)

The price of higher education has skyrocketed. (not included in the CPI)

The price of operating the federal government in deficit territory has skyrocketed. (not included in the CPI)

The value of an ounce of gold has skyrocketed, while the value of a dollar has plummeted.

During the Clinton Admin Greenspan announced "A new way of calculating inflation...". This was the scam that allowed the Fed to move into its final phase of the destruction of the dollar and the transfer of hard assets for their monopoly money by financing a completely unmanageable debt load for the US citizens and their government.

As they moved their manufacturing base to Asia (steel, automobiles, textiles, etc, etc.) and thereby hugely reduced their costs, they could maintain the retail prices while reaping huge profits for a decade, which, in effect, absorbed inflation of many of the items used to calculate the CPI.

Housing (for one example), which remained largely a part of domestically manufactured items, was calculated on a different scale to hide the inflation. Greenspan said, "...for example, a house may cost more, but it is, on average, larger, it may have more and better windows, dual-HVAC, electronic home automation, etc., which does not reflect upon inflation, per se, but is a price increase that's due to buying more of a house. The price of housing, therefore, is clearly disconnected from its moorings..." (paraphrased from memory) The price of owning a home was therefore excluded.

Yes, I did indeed see the pertinent parts of the Greenspan 'new economy', 'new way to calculate for inflation' speeches on Nightly Business Report.

The defense industry, oil, food, housing, transportation and health care have been excluded from the calculation of the CPI, some of the items being excluded simply by the method used to include them.

I won't get into Greenspan's 'productivity' as a factor arguments because they just pi$$ me off too much, other than to say that 'productivity increase' means to AG what wage and benefit concessions mean to average US citizens.

Read in the 3rd link below about Greenspan's infamous 'steak vs hamburger' argument, which was also part of the speeches for the new way he proposed for calculating inflation, which simply robbed recipients of federal money (SS, medicare/medicaid, pensions, etc) by cheating the COLA numbers downward vs real inflation.

The Fed/federeal gov't collusion has therefore robbed, for example, Social Security, by cheating it's recipients of more than 1/3 of their due COLA payments as well as looting the balance in the SS 'Trust' Fund to spend it on other non-related goods and services.

Remember, the dollar index is calculated by measuring the dollar (fiat paper) against a basket of international currencies (also fiat paper), NOT against commodities or any other hard assets.

http://www.gold-eagle.com/editorials_05/faber051605.html

http://www.wnd.com/index.php?pageId=59409

http://www.wnd.com/index.php?pageId=59409

Just a mini-rant regarding what I watched unfolding before my eyes over the past 2 decades on NBR as regards AG and the CPI.

[armstrong]

vote for Obama, vote for MCnCheece and we have even more of the same....dont vote for them and they still win and more of the same......so we need someone who has name recognition and is for the most part willing to lead "IN THE RIGHT DIRECTION" so we can survive long enough to let the grassroots level of change to take place mostly policy issues

[AlexMerced]

doesn't matter who is in office, if the people arn't educated good intentioned leaders are powerless. Education is what we need to focus on, it's whatRP has been trying to say all along.