Potential Future Hyperinflation

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By Stephen Lendman (about the author) Page 1 of 4 page(s)

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Potential Future Hyperinflation - by Stephen Lendman

Walter "John" Williams thinks out of the box. He makes disquieting reading, but you won't find him in the mainstream. At least not often. He runs a "Shadow Government Statistics" site with an electronic by-subscription newsletter. Anyone can access some of his data and occasional special reports. They can also assess his reasoning. In his judgment, government data are manipulated, corrupted and unreliable. He's not alone thinking that.

First, through technical changes over time in how data are collected and/or interpreted. The intent is to portray a more rosy scenario and ignore real world experiences of ordinary people. Calculating the CPI is an example:

-- in the 1980s, the Bureau of Labor Statistics (BLS) switched from using house prices to their rental equivalent;

-- then a decade ago, BLS made a spurious assumption for reasons other than it stated; it was that consumers substitute cheaper products for ones that have risen in price - such as hamburger for steak or chicken for meat; the idea wasn't to reflect their buying habits; it was to artificially lower inflation and distort its calculation; and

-- BLS has long adjusted prices for quality improvements; it's called "hedonic adjustment" that, in fact, cooks the books; so if computer speed increases, its cost is lowered proportionally even if its price rises; the same is true for autos with better brakes or other assorted innovations; again the result is distortion, and it affects all sorts of products; as a result, inflation is artificially and fraudulently lowered.

Another example is how federal deficits are calculated. Beginning with Nixon in 1969, a "unified budget" was adopted to artificially lower them by offsetting expenditures with "off-budget" Social Security revenues. The idea was to hide government's true cost at a time wartime and Great Society spending was high and would later factor into the 1970s and 1980s inflation. If deficits were calculated then and now by GAAP methodology (required of all publicly-traded corporations), they'd be much higher than annually reported - since the 1970s, in multiple trillions of dollars; fiscal alchemy sweeps them under the rug.

A further example was Nixon's "core inflation" idea. More artificial rigging - to exclude volatile food and energy prices to produce a lower figure. No matter that these items account for a large portion of consumer spending, especially for lower income households.

Others like this are numerous. They all amount to manipulative rigging for political or financial market purposes, and the practice goes back decades. A recent Bush administration one is switching to monthly instead of semi-annual jobs data seasonal adjustments to make the number friendlier. Later on (too late for markets to react) they're matched against payroll figures for a once a year adjustment and more accurate jobs created or lost reading.

The Clinton administration was also manipulative. In calculating employment, it lowered its monthly household sample from 60,000 to 50,000, reducing it mainly in inner cities. The effect is to artificially lower jobless numbers among blacks, Latinos and the poor overall. The calculation is also rigged by keeping out the 2.3 million prison population. The overall effect is illusion, not reality - to erase "free market" capitalism's defects and make it look wondrous and beneficial to mankind.

Williams reverse-engineers the GDP, employment and inflation data for more accurate readings. He backs out manipulative changes to produce more valid figures. Take the 5.5% May unemployment rate for example. BLS calculates it on persons who looked for work in the last 30 days. Williams adds those who want to work but gave up in frustration plus people working part-time who want (but can't find) full-time jobs. Result: real unemployment of over 12%.

The same methodology works for economic growth. The real value of all goods and services produced is lower than official GDP numbers when adjusted for higher inflation. More of it means higher prices, not increased output. It's how Williams makes his calculation, and he's worried. He sees inflation rising and a threat of hyperinflation ahead. He highlighted his concern in a recent April 2008 report called "Hyperinflation Special Report" with three dramatic sub-headings:

-- "Inflationary Recession Is in Place;

-- Banking Solvency Crisis Has Opened First Phase Monetary Inflation;" and

-- "Hyperinflationary Depression Remains Likely As Early as 2010."

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I am a 72 year old, retired, progressive small businessman concerned about all the major national and world issues, committed to speak out and write about them.

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and do not necessarily reflect those of this website or its editors.