Purchasing Power Fading Away

[Mustang]

It looks like consumer purchasing power, which has been fueling the economy, is in danger of fading away.  The three primary reasons are:

1.  Consumers are depleting their saving accounts.

2.  For those who didn't save their stimulus checks, credit card debt is skyrocketing.  And,

3.  Student loan repayments will soon resume.

www.foxbusiness.com/economy/americans-burning-excess-savings-pandemic-sf-fed-study-says

My very foggy crystal ball thinks that when savings run out, when credit limits are reached, and when loan payments resume consumers will have to quit spending.  These are signs that a recession is coming. With purchasing power depleted inflation should be under control and prices should stabilize allowing the Fed to lower rates.

[steadyeddy]

Aug 18, 2023 23:30:24 GMT Mustang said:

It looks like consumer purchasing power, which has been fueling the economy, is in danger of fading away.  The three primary reasons are:

1.  Consumers are depleting their saving accounts.

2.  For those who didn't save their stimulus checks, credit card debt is skyrocketing.  And,

3.  Student loan repayments will soon resume.

www.foxbusiness.com/economy/americans-burning-excess-savings-pandemic-sf-fed-study-says

My very foggy crystal ball thinks that when savings run out, when credit limits are reached, and when loan payments resume consumers will have to quit spending.  These are signs that a recession is coming. With purchasing power depleted inflation should be under control and prices should stabilize allowing the Fed to lower rates.

I agree with the 3 observations. However, until unemployment starts picking up I doubt there would be a recession. So I am looking for cracks in the employment reports.

As for rates stabilizing, again the gas prices are going up...

[steelpony10]

Mustang ,

       Being old school I still look for employment to decrease. The average recession is about 1.5 years. Our trading partners are worse off. Stagflation lasted a long long time. Someday with starts and stops it all goes away.. 🎉

[Chahta]

Aug 18, 2023 23:30:24 GMT Mustang said:

It looks like consumer purchasing power, which has been fueling the economy, is in danger of fading away.  The three primary reasons are:

1.  Consumers are depleting their saving accounts.

2.  For those who didn't save their stimulus checks, credit card debt is skyrocketing.  And,

3.  Student loan repayments will soon resume.

www.foxbusiness.com/economy/americans-burning-excess-savings-pandemic-sf-fed-study-says

My very foggy crystal ball thinks that when savings run out, when credit limits are reached, and when loan payments resume consumers will have to quit spending.  These are signs that a recession is coming. With purchasing power depleted inflation should be under control and prices should stabilize allowing the Fed to lower rates.

I disagree on the stimulus checks. That was to keep the economy going. Mine are long gone. But I agree on the rest. Things are looking a little shaky. Food and energy are taking a toll on consumers.

[Mustang]

I agree with decreasing employment and increasing unemployment rate. A decrease in consumer spending should cause that. An interesting thought: this is like "Which came first, the chicken or the egg?"     Which comes first, a decrease in consumer spending or unemployment?

[mnfish]

I posted something similar on Armchair quite a while back.
From The Balance -
"The unemployment rate is a lagging indicator. This means it measures the effect of economic events, such as a recession. The unemployment rate doesn't rise until after a recession has already started. It also means the unemployment rate will continue to rise even after the economy has started to recover."

[retiredat48]

Mustang ,...I suggest adding a #4 to your list...Your three items could go away, and still have loss of purchasing power...from the following:

#4 Underreporting and underestimating the effects of INFLATION.

Must realize, most governments have loved inflation. Makes old debt worthless. The only real losers are bond holders, who tend to be WEALTHY PEOPLE. Wages/take home pay, do not keep up.  The "progressives/liberals" understand this fully...that having printing presses rolling/undertaking more debt, only hurts the savers...ie the wealthy!  Called Modern Monetary Theory!

I emerged from the 1970's inflation ahead, only because of the house I owned, and I was investing in the means of production, aka companies, aka stocks, aka stock mutual funds. No bonds.  And dollar cost averaging into 401.Ks etc.

R48

[newtecher]

Aug 19, 2023 13:30:41 GMT retiredat48 said:

Mustang ,...I suggest adding a #4 to your list...Your three items could go away, and still have loss of purchasing power...from the following:

#4 Underreporting and underestimating the effects of INFLATION.

Must realize, most governments have loved inflation. Makes old debt worthless. The only real losers are bond holders, who tend to be WEALTHY PEOPLE. Wages/take home pay, do not keep up.  The "progressives/liberals" understand this fully...that having printing presses rolling/undertaking more debt, only hurts the savers...ie the wealthy!  Called Modern Monetary Theory!

I emerged from the 1970's inflation ahead, only because of the house I owned, and I was investing in the means of production, aka companies, aka stocks, aka stock mutual funds. No bonds.  And dollar cost averaging into 401.Ks etc.

R48

This is a common trope/conspiracy theory on the internet but what is the evidence? What kinds of numbers/categories are actually underreported?

You could make a case that the poorest parts of the population experienced larger inflation that the official CPI-U because they spend a bigger portion of their income on food, rents, and used-car expenses, which have experienced the highest inflation. The spending of this demographic certainly has an effect on the economy but most of the readers on this board are probably relatively rich.

[uncleharley]

When I am making an investment decision, I prefer to use market indicators rather than economic indicators. They are related, but not the same.

[steelpony10]

Aug 19, 2023 12:58:31 GMT Mustang said:

I agree with decreasing employment and increasing unemployment rate. A decrease in consumer spending should cause that. An interesting thought: this is like "Which came first, the chicken or the egg?"     Which comes first, a decrease in consumer spending or unemployment?

         When all the present demand for goods and services is met then jobs are lost. Right now which I regard as the beginning is the scare consumers with headlines tactic. Try to just slow spending but don’t create panic. There’s a lot of market uncertainly created in areas the Feds can’t control though. It’s a delicate slow dance back and forth. I’d kiss 2024 goodbye also. I just keep investing in cheap income with monthly small preplanned increments. Unlike most I look forward to this dragging on.
 

[retiredat48]

newtecher ,...who posted to me: "This is a common trope/conspiracy theory on the internet but what is the evidence? What kinds of numbers/categories are actually underreported?

You could make a case that the poorest parts of the population experienced larger inflation that the official CPI-U because they spend a bigger portion of their income on food, rents, and used-car expenses, which have experienced the highest inflation. The spending of this demographic certainly has an effect on the economy but most of the readers on this board are probably relatively rich."

--------------------
Not sure which of two you are referring to as "conspiracy"..

1. google Modern Monetary theory...this is no dream of mine, or conspiracy. You will find much on this subject. Here's one from google:"The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy is a 2020 book by Stephanie Kelton, a professor of public policy and economics at ..." This is well entrenched with the AOC's of the world.

2. Chata posted same recently, asking...where are studies that inflation is under-reported? Many studies, academic and bond pros. have shown inflation to be under-reported by 1-1.5% annually. I did some review of my library as I wanted to find the PIMCO study by bond guru Bill Gross (in his heyday)... couldn't find it. Suggest google this topic also...like I found much discussing Gross's study, as in :"

Scholarly articles for pimco william gross study on underreporting inflation


Lastly, my anecdotal evidence, from self, is inflation way under-reported. For example, I have kept breakfast menu's from 30 years since I retired, both north and south, and it shows inflation way under-reported. That $1.39 bkfst special now $7.99! And gvt does lousy job counting things such as smaller container sizes; that breakfasts cut from two slices of rye toast, to one...and so on.

Finally, don't wish to engage, but IMO the poor are not affected by inflation nearly as much as those who have saved. 100% inflation wipes out savings; if you have nothing it is irrelevant. Yes, current prices rise but the poor are in no better or worse position.

Put another way, if price rises are so bad, then what if prices fall. Should be a godsend to the poor, right?. NO. Just the opposite. Their wages fall similarly, and they have nothing. The middle class reduces their wealth, reducing their ability to donate/give to the poor.  Think the 1930's great depression. Deflation to be avoided at all costs.

Good to chat.

R48

[newtecher]

Aug 19, 2023 14:10:10 GMT retiredat48 said:

2. Chata posted same recently...where are studies that inflation is under-reported? Many studies, academic and bond pros. have shown inflation to be under-reported by 1-1.5% annually. I did some review of my library as I wanted to find the PIMCO study by bond guru Bill Gross (in his heyday). couldn't find it. Suggest google this topic also...like I found much discussing Gross's study, as in :"


R48

I googled and did not find any studies, just claims similar to Gross's claim you linked to. But repeating a claim does not make it true.

Regarding anecdotes, anyone can come up with an example of one item that grew in price a lot. But then you need to take into account how much you actually spend on this item and what the rest of the items do. That is what I mean by a study. 

[retiredat48]

Aug 19, 2023 14:27:10 GMT newtecher said:

Aug 19, 2023 14:10:10 GMT retiredat48 said:

2. Chata posted same recently...where are studies that inflation is under-reported? Many studies, academic and bond pros. have shown inflation to be under-reported by 1-1.5% annually. I did some review of my library as I wanted to find the PIMCO study by bond guru Bill Gross (in his heyday). couldn't find it. Suggest google this topic also...like I found much discussing Gross's study, as in :"


R48

I googled and did not find any studies, just claims similar to Gross's claim you linked to. But repeating a claim does not make it true.

Regarding anecdotes, anyone can come up with an example of one item that grew in price a lot. But then you need to take into account how much you actually spend on this item and what the rest of the items do. That is what I mean by a study. 

Sorry folks, but I cannot spend my remaining few years digging out the studies you want to see.  If you have a true interest, DIY. I showed you the way.   I suspect Gross (or PIMCO)pulled his study off the marketplace, as it is PIMCO property.  It was quite detailed.

And sorry, anecdotes are important.  I believe my own eyes versus gvt reports /studies on inflation.  And yes, inflation in typical retiree spending...much higher than reported.  Take the sorry method for reporting a biggie: housing costs...and using "rent-equivalent" SURVEYS as the data point.  Did not nearly reflect the upward zoom in home prices of past two years.  Nor did it reflect my senior breakfast going from $5.99 to $7.99 in two years.  Care to do the math?  And it affects my investing...like, how many others have owned three homes last decade, such as I did?  Tell me price rises were small, like the gvt has done.  Made hundreds of thousands of dollars.

R48

[newtecher]

Aug 19, 2023 15:06:47 GMT retiredat48 said:

Aug 19, 2023 14:27:10 GMT newtecher said:

I googled and did not find any studies, just claims similar to Gross's claim you linked to. But repeating a claim does not make it true.

Regarding anecdotes, anyone can come up with an example of one item that grew in price a lot. But then you need to take into account how much you actually spend on this item and what the rest of the items do. That is what I mean by a study. 

Sorry folks, but I cannot spend my remaining few years digging out the studies you want to see.  If you have a true interest, DIY. I showed you the way.   I suspect Gross (or PIMCO)pulled his study off the marketplace, as it is PIMCO property.  It was quite detailed.

And sorry, anecdotes are important.  I believe my own eyes versus gvt reports /studies on inflation.  And yes, inflation in typical retiree spending...much higher than reported.  Take the sorry method for reporting a biggie: housing costs...and using "rent-equivalent" SURVEYS as the data point.  Did not nearly reflect the upward zoom in home prices of past two years.  Nor did it reflect my senior breakfast going from $5.99 to $7.99 in two years.  Care to do the math?  And it affects my investing...like, how many others have owned three homes last decade, such as I did?  Tell me price rises were small, like the gvt has done.  Made hundreds of thousands.

R48

You did not show the way. Googling what you suggested results in only opinions or news articles on people's opinions.

If you really have seen such studies, it should not be hard to find. If you have not, perhaps it is not worth making claims about underreported inflation or refer to studies casually as if they are common knowledge. I am not trying to pick on you; I would be generally interested in reading any such studies.

[Mustang]

Aug 19, 2023 14:10:10 GMT retiredat48 said:

 And gvt does lousy job counting things such as smaller container sizes; that breakfasts cut from two slices of rye toast, to one...and so on.

Shrinkflation is real and very difficult to measure.  For example, a one-pound can of coffee (which contained 13 ounces a couple of years ago)  now contains 11.3 ounces of coffee but the container is the same size.  It the same with every brand of cereal that I eat.  The boxes are the same size just less cereal. I doubt that most consumer would even know they get less. I doubt that the government tracks by the ounce. If all that is counted by the government is a company's report on the price of a can, box or case then the increase in cost would be missed.

[retiredat48]

newtecher ,...who posted to me:  "(R48) You did not show the way. Googling what you suggested results in only opinions or news articles on people's opinions.



If you really have seen such studies, it should not be hard to find. If you have not, perhaps it is not worth making claims about underreported inflation or refer to studies casually as if they are common knowledge. I am not trying to pick on you; I would be generally interested in reading any such studies."

---------------------------------------
I double-checked my library and cannot find the original study/paper by W. Gross.  However, here is a followup years later by Gross discussing the continued under-reporting of inflation and the reasons why, and references to others doing similar "studies."  Sorry but graphs/charts discussed below were not reproducible.


Investment Outlook

Bill Gross | June 2008



Hmmmmm?

You can fool some of the people all of the time,

and all of the people some of the time,

but you cannot fool all of the people all of the time.

– Abraham Lincoln



What this country needs is either a good 5¢ cigar or the reincarnation of an Illinois “rail-splitter” willing to tell the American people “what up” – “what really up.” We have for so long now been willing to be entertained rather than informed, that we more or less accept majority opinion, perpetually shaped by ratings obsessed media, at face value. After 12 months of an endless primary campaign barrage, for instance, most of us believe that a candidate’s preacher – Democrat or Republican – should be a significant factor in how we vote. We care more about who’s going to be eliminated from this week’s American Idol than the deteriorating quality of our healthcare system. Alternative energy discussion takes a bleacher’s seat to the latest foibles of Lindsay Lohan or Britney Spears and then we wonder why gas is four bucks a gallon. We care as much as we always have – we just care about the wrong things: entertainment, as opposed to informed choices; trivia vs. hardcore ideological debate.

It’s Sunday afternoon at the Coliseum folks, and all good fun, but the hordes are crossing the Alps and headed for modern day Rome – better educated, harder working, and willing to sacrifice today for a better tomorrow. Can it be any wonder that an estimated 1% of America’s wealth migrates into foreign hands every year? We, as a people, are overweight, poorly educated, overindulged, and imbued with such a sense of self importance on a geopolitical scale, that our allies are dropping like flies. “Yes we can?” Well, if so, then the “we” is the critical element, not the leader that will be chosen in November. Let’s get off the couch and shape up – physically, intellectually, and institutionally – and begin to make some informed choices about our future. Lincoln didn’t say it, but might have agreed, that the worst part about being fooled is fooling yourself, and as a nation, we’ve been doing a pretty good job of that for a long time now.

I’ll tell you another area where we’ve been foolin’ ourselves and that’s the belief that inflation is under control. I laid out the case three years ago in an Investment Outlook titled, “Haute Con Job.” I wasn’t an inflationary Paul Revere or anything, but I joined others in arguing that our CPI numbers were not reflecting reality at the checkout counter. In the ensuing four years, the debate has been joined by the press and astute authors such as Kevin Phillips whose recent Bad Money is as good a summer read detailing the state of the economy and how we got here as an “informed” American could make.

Let me reacquaint you with the debate about the authenticity of U.S. inflation calculations by presenting two ten-year graphs – one showing the ups and downs of year-over-year price changes for 24 representative foreign countries, and the other, the same time period for the U.S. An observer’s immediate take is that there are glaring differences, first in terms of trend and second in the actual mean or average of the 2 calculations. These representative countries, chosen and graphed by Ed Hyman and ISI, have averaged nearly 7% inflation for the past decade, while the U.S. has measured 2.6%. The most recent 12 months produces that same 7% number for the world but a closer 4% in the U.S.





This, dear reader, looks a mite suspicious. Sure, inflation was legitimately much higher in selected hot spots such as Brazil and Vietnam in the late 90s and the U.S. productivity “miracle” may have helped reduce ours a touch compared to some of the rest, but the U.S. dollar over the same period has declined by 30% against a currency basket of its major competitors which should have had an opposite effect, everything else being equal. I ask you: does it make sense that we have a 3% – 4% lower rate of inflation than the rest of the world? Can economists really explain this with their contorted Phillips curve, output gap, multifactor productivity theorizing in an increasingly globalized “one price fits all” commodity driven global economy? I suspect not. Somebody’s been foolin’, perhaps foolin’ themselves – I don’t know. This isn’t a conspiracy blog and there are too many statisticians and analysts at the Bureau of Labor Statistics (BLS) and Treasury with rapid turnover to even think of it. I’m just concerned that some of the people are being fooled all of the time and that as an investor, an accurate measure of inflation makes a huge difference.





The U.S. seems to differ from the rest of the world in how it computes its inflation rate in three primary ways: 1) hedonic quality adjustments, 2) calculations of housing costs via owners’ equivalent rent, and 3) geometric weighting/product substitution. The changes in all three areas have favored lower U.S. inflation and have taken place over the past 25 years, the first occurring in 1983 with the BLS decision to modify the cost of housing. It was claimed that a measure based on what an owner might get for renting his house would more accurately reflect the real world – a dubious assumption belied by the experience of the past 10 years during which the average cost of homes has appreciated at 3x the annual pace of the substituted owners’ equivalent rent (OER), and which would have raised the total CPI by approximately 1% annually if the switch had not been made.

In the 1990s the U.S. CPI was subjected to three additional changes that have not been adopted to the same degree (or at all) by other countries, each of which resulted in downward adjustments to our annual inflation rate. Product substitution and geometric weighting both presumed that more expensive goods and services would be used less and substituted with their less costly alternatives: more hamburger/less filet mignon when beef prices were rising, for example. In turn, hedonic quality adjustments accelerated in the late 1990s paving the way for huge price declines in the cost of computers and other durables. As your new model MAC or PC was going up in price by a hundred bucks or so, it was actually going down according to CPI calculations because it was twice as powerful. Hmmmmm? Bet your wallet didn’t really feel as good as the BLS did.

In 2004, I claimed that these revised methodologies were understating CPI by perhaps 1% annually and therefore overstating real GDP growth by close to the same amount. Others have actually tracked the CPI that “would have been” based on the good old fashioned way of calculation. The results are not pretty, but are undisclosed here because I cannot verify them. Still, the differences in my 10-year history of global CPI charts are startling, aren’t they? This in spite of a decade of financed-based, securitized, reflationary policies in the U.S. led by the public and private sector and a declining dollar. Hmmmmm?

In addition, Fed policy has for years focused on “core” as opposed to “headline” inflation, a concept actually initiated during the Nixon Administration to offset the sudden impact of OPEC and $12 a barrel oil prices! For a few decades the logic of inflation’s mean reversion drew a fairly tight fit between the two measures, but now in a chart shared frequently with PIMCO’s Investment Committee by Mohamed El-Erian, the divergence is beginning to raise questions as to whether “headline” will ever drop below “core” for a sufficiently long period of time to rebalance the two. Global commodity depletion and a tightening of excess labor as argued in El-Erian’s recent Secular Outlook summary suggest otherwise.





The correct measure of inflation matters in a number of areas, not the least of which are social security payments and wage bargaining adjustments. There is no doubt that an artificially low number favors government and corporations as opposed to ordinary citizens. But the number is also critical in any estimation of bond yields, stock prices, and commercial real estate cap rates. If core inflation were really 3% instead of 2%, then nominal bond yields might logically be 1% higher than they are today, because bond investors would require more compensation. And although the Gordon model for the valuation of stocks and real estate would stress “real” as opposed to nominal inflation additive yields, today’s acceptance of an artificially low CPI in the calculation of nominal bond yields in effect means that real yields – including TIPS – are 1% lower than believed. If real yields move higher to compensate, with a constant equity risk premium, then U.S. P/E ratios would move lower. A readjustment of investor mentality in the valuation of all three of these investment categories – bonds, stocks, and real estate – would mean a downward adjustment of price of maybe 5% in bonds and perhaps 10% or more in U.S. stocks and commercial real estate.

A skeptic would wonder whether the U.S. asset-based economy can afford an appropriate repricing or the BLS was ever willing to entertain serious argument on the validity of CPI changes that differed from the rest of the world during the heyday of market-based capitalism beginning in the early 1980s. It perhaps was better to be “entertained” with the notion of artificially low inflation than to be seriously “informed.” But just as many in the global economy are refusing to mimic the American-style fixation with superficialities in favor of hard work and legitimate disclosure, investors might suddenly awake to the notion that U.S. inflation should be and in fact is closer to worldwide levels than previously thought. Foreign holders of trillions of dollars of U.S. assets are increasingly becoming price makers not price takers and in this case the price may not be right. Hmmmmm?

What are the investment ramifications? With global headline inflation now at 7% there is a need for new global investment solutions, a role that PIMCO is more than willing (and able) to provide. In this role we would suggest: 1) Treasury bonds are obviously not to be favored because of their negative (unreal) real yields. 2) U.S. TIPS, while affording headline CPI protection, risk the delusion of an artificially low inflation number as well. 3) On the other hand, commodity-based assets as well as foreign equities whose P/Es are better grounded with local CPI and nominal bond yield comparisons should be excellent candidates. 4) These assets should in turn be denominated in currencies that demonstrate authentic real growth and inflation rates, that while high, at least are credible. 5) Developing, BRIC-like economies are obvious choices for investment dollars.

Investment success depends on an ability to anticipate the herd, ride with it for a substantial period of time, and then begin to reorient portfolios for a changing world. Today’s world, including its inflation rate, is changing. Being fooled some of the time is no sin, but being fooled all of the time is intolerable. Join me in lobbying for change in U.S. leadership, the attitude of its citizenry, and (to the point of this Outlook) the market’s assumption of low relative U.S. inflation in comparison to our global competitors.

William H. Gross

Managing Director

[steadyeddy]

Aug 19, 2023 13:45:41 GMT newtecher said:

Aug 19, 2023 13:30:41 GMT retiredat48 said:

Mustang ,...I suggest adding a #4 to your list...Your three items could go away, and still have loss of purchasing power...from the following:

#4 Underreporting and underestimating the effects of INFLATION.

Must realize, most governments have loved inflation. Makes old debt worthless. The only real losers are bond holders, who tend to be WEALTHY PEOPLE. Wages/take home pay, do not keep up.  The "progressives/liberals" understand this fully...that having printing presses rolling/undertaking more debt, only hurts the savers...ie the wealthy!  Called Modern Monetary Theory!

I emerged from the 1970's inflation ahead, only because of the house I owned, and I was investing in the means of production, aka companies, aka stocks, aka stock mutual funds. No bonds.  And dollar cost averaging into 401.Ks etc.

R48

This is a common trope/conspiracy theory on the internet but what is the evidence? What kinds of numbers/categories are actually underreported?

You could make a case that the poorest parts of the population experienced larger inflation that the official CPI-U because they spend a bigger portion of their income on food, rents, and used-car expenses, which have experienced the highest inflation. The spending of this demographic certainly has an effect on the economy but most of the readers on this board are probably relatively rich.

I think the "basket" that is measured went through changes in calculating inflation.  Qualitatively, I do agree with retiredat48 regarding under-reporting of inflation numbers when compared to reality of what common citizenry experiences in real life. 

[newtecher]

retiredat48 , thank you for digging Gross's letter out. (I think read it back in the day). It is still not a study but at least, it is clear what he (and presumably you) were talking about: 1) product substitution and 2) hedonic/quality adjustments. His third point about the owner's rent (he is comparing home prices to the owner’s equivalent rent) does not seem right to me, since it was primarily due to declining mortgage rates. The actual cost of owning a home (average mortgage payment) has been following the owner’s equivalent rent pretty closely.

The best way to calculate inflation is debatable but it is clear to me that both product substitution and hedonic adjustment must be a part of the calculation. I’ve been buying new laptops every several years for about $1000 over the last 30 years but is silly to argue the inflation on tech is therefore about zero. Anything tech item sold for $1000 in the year 2000, is worth nothing now, indicating huge deflation in high-tech items. If, for some reason, you do want to buy the same capability in tech items, you can do it cheaper and cheaper every year. That is what hedonic adjustment is trying to take into account.

Product substitution definitely reflects my behavior as well. When eggs spiked in price due to bird flu a year or two ago, I was substituting them with other sources of protein. Since air travel is expensive right now, I take my family on vacations mostly by car. It does not cause me any real pain. In any event, CPI-U calculations assume only partial substitution in these scenarios and generally show higher inflation numbers than I personally have experienced in all categories where substitution is possible.

Coming back to Gross’ argument, he argues that inflation is underestimated by about 1% since ~2000 due to these adjustments (his methodology is unclear). Interestingly, there is an argument in economics that inflation has been underestimated in the 21 century by about the same amount (e.g., pubs.aeaweb.org/doi/pdfplus/10.1257/089533003321164930 and doi.org/10.1257/002205103321544729). One reason is the appearance of many free internet services. My kids are talking to their grandparents on video calls regardless of distance. The cost of a similar capability in 2000 would have been astronomical and yet, it does not affect CPI-U calculations since new free services do not enter the calculations at all. The same goes for social networks, cloud storage, web email, free music and movies on the internet (Youtube, etc.), yet I do not hear people talking about how they are no longer paying for long-distance calls, snail mail letters to relatives or banks, DVDs, and (increasingly) cable TV.

Anyway, even if we take Gross’ claim that “true” inflation is underestimated by 1% since 2000 at face value, what does it imply? US real GDP per capita has grown about 1% since 2000, so if inflation is underestimated by 1%, then the “true” standards of living are the same now as in 2000. Does that make sense to you?

In fact, as I was writing this, I remembered a thread on M* about 10-15 years ago, where someone linked to www.shadowstats.com/alternate_data/inflation-charts as supposedly showing the TRUE inflation (their methodology is also not explained). I believe Gross referred to these graphs without naming them when he wrote “The results are not pretty, but are undisclosed here because I cannot verify them.” Many people instinctively like these ~10%-inflation numbers as something that matches their anecdotal experiences but fail to think through the mathematical implications. If you believe these inflation values (higher by about 7-8% per year than official CPI since 2000) as true, then our standard of living is down by a factor of 5 or more since 2000 and, therefore, down to the great depression levels. I think this is nuts.

[mnfish]

Aug 18, 2023 23:30:24 GMT Mustang said:

It looks like consumer purchasing power, which has been fueling the economy, is in danger of fading away.  The three primary reasons are:

1.  Consumers are depleting their saving accounts.

2.  For those who didn't save their stimulus checks, credit card debt is skyrocketing.  And,

3.  Student loan repayments will soon resume.

www.foxbusiness.com/economy/americans-burning-excess-savings-pandemic-sf-fed-study-says

My very foggy crystal ball thinks that when savings run out, when credit limits are reached, and when loan payments resume consumers will have to quit spending.  These are signs that a recession is coming. With purchasing power depleted inflation should be under control and prices should stabilize allowing the Fed to lower rates.

Snippets from a Mstar article - 
Why Has the Yield Curve Been Wrong So Far?
“You have to look at the starting point of where we were,” McAllister says. “We were at zero [percent federal-funds rate] for a fairly extended period of time.”
In addition, the Fed was pumping money into the economy in a direct fashion by purchasing bonds—a practice known as quantitative easing.
Then there were the massive amounts of fiscal stimulus (nearly $5 trillion in total)
“It was extremely easy monetary policy, unprecedented fiscal policy,” McAllister says. “It’s going to take longer (lag) to have the kind of impact that a 525-basis-point increase by the Fed would have and an inverted curve would have on the economy.”

Posted by uncleharleyAug 19, 2023 at 8:46am
"When I am making an investment decision, I prefer to use market indicators rather than economic indicators. They are related, but not the same."

Can't argue with that statement if the investment is going to be for days or weeks.