Sunday, January 13, 2013

Peter Schiff on the inflation propaganda

Economists such as Peter Schiff who think that the expansion of money supply would bring nothing but the best to the economy are dismissing the concerns about inflationary hawks and are pointing to low inflation which has been occurring during the current activism of the Fed. In a blog aimed at Schiff himself, Paul Krugman wrote that the sub 2.5 per cent increases in the CPI over the past couple of years is enough to prove him wrong but the thing is that Krugman and many others have suggested that the CPI overstates inflation and also that it would be better if the Federal Reserve helped with less strict methods.

However, Schiff thinks that there's plenty of evidence to prove Krugman wrong. For instance, in the period from 1999 to 2002 the BLS (the Bureau of Labor Statistics) "Newspaper and Magazine Index", which is a component of the CPI increased by 31.1 per cent. But the ten most popular newspapers' perusal of cover prices showed an average price increase of 131.5 per cent over the same period, which is about 3.5 times faster than the Bureau of Labor Statistics stats.

Peter Schiff gives another example of the fact that the CPI is meaningless – the health insurance costs by saying that according to the BLS people can breathe easily because of the fact that the HII increased a 4.3 per cent in the years between 2008 and 2012. Schiff believes that the BLS cannot be trusted as it fails to report the actual prices of health insurance and newspapers and magazines. Moreover, Peter thinks that the method in which prices are reported is designed in order for the increases to be factored out, whereas the newer methods of CPI are designed to report on product changes, consumer choices, spending patterns and substitution bias. Schiff believes that they are concentrated on the cost of living not the cost of things. According to Global Investor Newsletter, people selected BLS prices changes for 20 everyday services and goods over 2 separate 10-year periods. The items include milk, gasoline, eggs, new cars and others.

Furthermore, Peter Schiff says that apart from statistical problems which hide inflation, there are many macroeconomic factors which contributed to the prices' being kept low despite of quantitative easing. U.S. trade deficits and accumulation of the foreign central bank dollar mean that lots of the printed money ends up not in U.S. shopping centers, but in foreign bank vaults. Meanwhile, dollars flow out, consumer goods flow in and a lid is being kept on domestic prices, which, as a result, exports U.S. inflation as foreign central banks are monetizing the U.S. deficits and their surplus is recycled into U.S Treasuries.The U.S. government has been borrowing inexpensively because of the demand had pushed down bond yields. According to Peter Schiff, when things reverse, yields will climb, the price of bonds will fall and all these will drown America in inflation.

The investment guru is arguing that the federal government is under counting inflation in a recent video. He granted that the money which was pumped into the system by means of monetary and fiscal stimulus should have resulted in inflation. He also said that CPI – the Consumer Price Index is designed to miss the rising prices.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.