New Questions About Inflation Cooking and Bush/Andrew Card

Key points:
1) US economic statistics started changing right after Bush came into office, along with Andrew Card, figures "look better" than reality.
2) Subtractions from US inflation index started from GM, in ploy to grab more car and home financing deals. Other makers followed.
3) Suddenly, GM is sending out new negative numbers to rev up mortgage arm profits, and cook US inflation numbers, right before the election.

****

US Economic Figures “Cooked” Before Election
-Increasingly large portion of US statistics “garbage”
-Outlying values left in to make inflation look lower
-GM started changes just as Bush/Card came to power

(Editor's note: the author of the Baum story, linked below, wishes to underscore the difference between "cooked" and a "statistical bias based on methodology in place"--her description of said findings. The author of the Liberty Whistle article feels such a description is too verbose for general consumption.)

(SEATTLE) 09/10/04 - (UPDATE2) The last several US inflation reports, including the CPI and PPI reports and others, were reported as “low or negative,” but don’t show the true picture of the US economy, due to outsized subtractions from real inflation numbers. The subtractions are related to large “price drops” tied to US vehicle maker finance programs, rather than normal economic forces of supply and demand. The price drops are so large, they shouldn’t have been included--one of them comes out to be a 30 percent annualized rate. In fact, the US bureau that publishes the statistics normally removes such large values as “outliers,” according to official documentation-but it hasn’t done so this time, right before the election. Further, the July CPI has not one, but up to three negative outliers (1).

Moreover, because US vehicle manufacturers also own vehicle and home mortgage financing arms, the artificially low prices reported actually help to rev up profits through increased financing volumes-unlike other manufacturers making up the rest of the economy. Indeed, recently the finance arm of vehicle maker General Motors reported increased mortgage volumes--shortly after questionable vehicle price values were reported via inflation numbers, which in turn, created a false perception regarding overall inflation. (2)

The news comes at a time when other major problems have been found in the inflation numbers related to housing costs-specifically, due to the assignment of a large portion of inflation to “owners equivalent of rent,” most of headline inflation indices are worthless, and are even inverted. (3) In addition, it has recently been discovered that the CPI does not properly account for the employee portion of health care premiums-the index is too low by at least a factor of ten. (4) Finally, US inflation indices are not backwards comparable for other reasons, since new ways to calculate them yields lower reported values. Yes--the 1970s weren’t really too different from the 80s and 90s in terms of inflation, after all. (5)

Taken together, the problems with the inflation indices help explain current problems with the US economy, where companies lay off and can’t hire due to high costs, and where capital rushes madly into real estate investments. Indeed, inflation indices that don’t have negative house or car “fudging” highlight dire problems with inflation. Moreover, bonds are thus fundamentally mis-priced as compared to previous periods, since they are priced based on statistics assumed to be comparable, but which are instead increasingly being modified.

The numbers also suggest improper influence peddling and profiteering. Andrew Card, the Bush Chief of Staff, has a long-time history with General Motors, and the auto industry-and is perhaps the most influential person in the US who stands to benefit from such improper changes, along with Mr. Bush. Indeed, it was specifically General Motors who began the questionable incentive price cuts--right after Bush came into office (LA Times, 09/10/04). The Bush administration has recently made a number of claims about the economy, which aren't supportable via data and statistics. Mr. Card was not immediately available for comment about the changes eminating from his former employer, so quickly after he and Bush came into power--and now twice immediately before the election, just in time for government reports on inflation.

(1)“Reflecting increased incentives by some manufacturers, the index for new vehicles declined 0.7 percent in July” (BLS, July CPI); “The light motor trucks index fell 2.5 percent” <30 pct annualized!> (BLS, August PPI). “Outlier”: “Extreme-valued price ratios often occur as a result of deep discounts or free promotional goods or services” (BLS) (2) Ditech, mortgage arm of General Motors. (3) Caroline Baum/Alliance (Bloomberg) Understate Housing Costs, Understate Inflation ; (REUTERS) A slowing US housing market may heat up inflation (4) See “Hole Found in US Economy” report, below. (5) Quality-adjusted “hedonic” measurements have been slowly phased in over the last decade to lower reported inflation values; however, economists commonly compare such values to previous ones in pricing bonds--which is an increasingly invalid comparison.