Accounting Problems Found in Major US Economic Indices

www.libertywhistle.us

Accounting Problems Found in Major US Economic Indices
Contact - Dan Spillane DanSLegal at aol.com, Citizens for Corporate Accountability 410 Denny Way #229 Seattle, WA 98122 [phone]

(SEATTLE) –In a troubling sign that accounting problems have grown beyond corporate balance sheets, two of the main economic gauges used by Wall Street, banks, and in the calculation of Social Security payments have been found to contain serious math problems.

The problems were identified by examining contents of tables provided by the US Bureau of Labor Statistics, and comparing between December 2001 and December 2002 weightings.

According to the tables, in the energy category, at least two changes in 2002 reduce energy cost weightings in the indices, including one which reduces importance of “fuels and utilities” in the overall index by a whopping ten percent, and another which pushes winter energy cost calculations into summer.(1)

In the education category, the importance of college, elementary tuition, and childcare was reduced between 2001 and 2002.

In the housing category, the weighting of “hotels and motels” was increased (against the backdrop of post-Sept 11th falls in tourism), while at the same time, “housing at school” got less weighting.

Finally, in the most recent table which rates relative cost importance, health insurance is placed below others categories such as “recreational reading materials”, “Pets”, and “Toys.”(1)

These findings are significant because they represent areas where consumers and businesses face real, ever-increasing costs, in contrast to reports recently from the administration claiming a healthy economy and low inflation. Retirees, for example, may have received smaller payments due to these errors, and banks may have made loans where otherwise they should have not.

#####

Footnotes: (1) :”Relative Importance, ” ”Housing Fuels and Utilities”. US Bureau of Labor Statistics table, 4.934(2001) vs. 4.469(2002)-- representing an reduction of ten percent in the weighting, in the face of rising costs and record high oil prices. (2) Based on recent statistics from the American Medical Association, recent health insurance costs represent an amount approximately twenty times greater than that represented in the published CPI.

[Pale Blue Dot]

1. Holy crap.

Kick. This is important, and may be just the tip of the iceberg.

[SpiralHawk]

2. Oh come on now. this is just another pack of lies

There's nothing to see here. The economy is just dandy.

Must be more liberal propaganda or whatever.

Hey, remember, "A rising tide lifts all yachts."*

So get you yacht outfitted for some high times on the "Sea of Prosperity" with Cap'n Chimpy at the helm of SS America. The Bush Recovery Plan will kick in any minute now.

Oh, oh, are those rocks I see ahead? Hard to Port - Hard to Port. Oh no ---Eeeeekkkkk !!!!


* Republican national motto

[Sir_Shrek]

3. Pretty vague...

In would love to see original and corrected weightings so I could use this in a debate.

[Spazito]

4. Kick!

Yikes! To be honest, it doesn't really surprise me, nothing the Bush cabal does these days.

[Gman]

5. Tip of the iceberg

I have no doubt overall economic growth numbers that show the economy growing are flat out lies. The economy is stagnant if anything. I'd aso like to see the true numbers on new unemployment filings.

This article is big. If it turnes out that indicators of economic growth are bad, the market will crater to early 2002 levels if not lower, just in time for the election.

[RustyShackleford]

39. There's no need to worry about icebergs anymore

by using newly approved indicators at least 95% of icebergs are fully visable, there is no need to fear the 5% that lies under the surface.

[Beaker]

41. are you saying that the ship of state has capsized?

your numbers seem upside-down.

[leesa]

44. With global warming...what icebergs?

[cthrumatrix]

6. there are many who have wondered how the DJ commodity index was up 11%

and the CPI for the year does not reflect the incrdible jump in prices.

The other point is that the weighting doens't reflect increase in: health insurance, car insurance, real estate taxes....bills that are real.

The "con game" is there is no inflation...which is BS...they want to keep rates low...they have to ...or else...the stock market will flow to investments paying a nice safe yield (cd's etc..)

The weighting should be organized to reflect reality....adn then backtested. For example, health insurance is about 13% of a monthly budget...but only 5% in the index.

[54anickel]

7. There goes what little confidence was left in the US Dollar.

[Maeve]

8. Fuzzy math strikes again

I read this and asked "WHY these changes?????"

According to the tables, in the energy category, at least two changes in 2002 reduce energy cost weightings in the indices, including one which reduces importance of “fuels and utilities” in the overall index by a whopping ten percent, and another which pushes winter energy cost calculations into summer.(1)

In the education category, the importance of college, elementary tuition, and childcare was reduced between 2001 and 2002.

In the housing category, the weighting of “hotels and motels” was increased (against the backdrop of post-Sept 11th falls in tourism), while at the same time, “housing at school” got less weighting.

[cthrumatrix]

10. so that INFLATION does not show in the CPI ...and rates stay low

[Maeve]

12. Yes--a better question might be

"What EXCUSE do they have for making these changes??" I've been called a skeptic and a pessimist, but.....

No matter how cynical you get, you can't keep up with these guys.

[cthrumatrix]

13. the question is...why not use "realistic ratio's" which reflect true costs

the answer is already known...they don't want to rain on the stock market by showing runaway inflation in: energy, insurance, food


I'm sure the media will be all over this one (sarcasm off).

[papau]

9. Congrats on finding this detail out - the DOL has nada- where is the data?

Can you post links to

”Relative Importance, ” ”Housing Fuels and Utilities”. US Bureau of Labor Statistics table, 4.934(2001) vs. 4.469(2002)-- representing an reduction of ten percent in the weighting, in the face of rising costs and record high oil prices.

and the data from which you obtained the recent statistics (from the American Medical Association, recent health insurance costs represent an amount approximately twenty times greater than that represented in the published CPI).

My dashed high hopes for getting the data on my own result from nada at"For further details visit the CPI home page on the Internet at
http://www.bls.gov/cpi/ or contact our CPI Information and Analysis
Section on [phone]. ftp://ftp.bls.gov/pub/news.release/cpi.txt

Planned Changes in the Consumer Price Index in 2004

Expenditure Weight Update

Effective with release of data for January 2004, the Bureau of Labor Statistics (BLS) will update the consumption expenditure weights in the Consumer Price Index for All Urban Consumers (CPI-U) and Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the 2001-02 period. The updated expenditure weights for these indexes will replace the 1999-2000 weights that were introduced effective with the January 2002 CPI release. As originally announced by BLS in December 1998, CPI expenditure weights will continue to be updated at two-year intervals
subsequent to the 2004 updating.

For the first six months of 2004, BLS will continue to calculate and publish selected CPI-U and CPI-W "overlap" indexes using the 1999-2000 expenditure pattern that was introduced into the CPI in 2002. These indexes will be compiled on a not seasonally adjusted basis. Comparison of these index series to the corresponding updated series will enable users of the CPI to observe the effects of the expenditure weight change. The subsequent expenditure updates scheduled in 2006 and every two years thereafter also will be accompanied by the publication of overlap indexes for a six-month period using the previous expenditure pattern.

C-CPI-U Index Revisions

As scheduled, effective with release of data for January 2004, the Chained Consumer Price Index for All Urban Consumers (C-CPI-U) will undergo its second annual index revision. C-CPI-U indexes for the 12 months of 2002 will be issued in final form and values for the 12 months of 2003 will be revised and issued as interim. Calculation of the preliminary versions of the C-CPI-U--the initial version for January and the subsequent months of 2004 and the interim (revised initial) indexes for 2003--will employ the 2001-02 expenditure weights also used in the CPI- U and CPI-W. Note that the final values of the C-CPI-U employ monthly expenditure weights corresponding to the price collection period in their calculation. Thus, in calculation of the final (revised interim) C-CPI-U values for the months of 2002, the biennial 1999-2000 expenditure weights will be replaced with separate monthly expenditure weights.

Elementary Index Formula Changes

Effective with release of data for January 2004, a geometric mean
formula will replace the arithmetic mean formula in the calculation of the elementary indexes in the CPI-U, CPI-W, and C-CPI-U for (1) cable and satellite television and radio services (formerly cable TV) and for (2) eyeglasses and eye care. The geometric mean formula at the elementary index level is more appropriate for use in categories in which the consumer may alter his or her spending in response to changing prices within that category. Since the original decision to employ an arithmetic mean was made by BLS in 1998, changes in the markets for the above- mentioned categories have led to increased opportunity for consumer substitution behavior within those categories. The BLS introduced the geometric mean formula for calculating most of the basic components of the
CPI-U and CPI-W with release of the CPI for January 1999.

The BLS will continue to evaluate the appropriateness of the formula used in the calculation of the elementary item indexes and on an annual basis may change or adjust the formula for constructing these indexes. A description of the 1999 adoption of the geometric mean formula is available on the internet at http://www.bls.gov/opub/mlr/1998/10/contents.htm

[BadGimp]

11. They're lying to us? I'm Shocked I tell you, shocked.

[aneerkoinos]

14. What is the real inflation?

From Financialsense wrapup:

http://www.financialsense.com/Market/wrapup.htm

"As Bill Gross recently penned last month “when too much debt infects the heart of capitalism you either default or inflate it away and the latter is by far the easiest (although not necessarily the wisest) policy." As mentioned previously in past essays the stage is set on the monetary front for higher rates of inflation. One of this year’s big surprises for the financial markets is going to be higher rates of inflation. If they measure it properly the true inflation rate is already in the high single digits. The first major pillar of this new bull market in precious metals is a monetary one and monetary conditions are now primed for higher precious metals prices."

So the real inflation in US is already perhaps about 6-9%?!?!?!. What is the treshold when one starts to speak about hyperinflation?

[cthrumatrix]

15. common sense says look at the dollar falling 35% the past 2yrs.= inflation

so you know that everything costs more....this is why gold (priced in $$'s) has gone up and other commodities (and for other reasons like demand)

Hyperinflation can happen when your dollar is worth less and less...amazing they get away with the rheotoric they do.

[indepat]

16. There are liars, damned liars and statistics: and statistics can be skewed

to show whatever the manipulator wants.

[Tom Yossarian Joad]

17. Major kick!

:kick:

[loudsue]

18. Good Gawd 'yall.... this is really dangerous stuff

This is the most lying, EVIL bunch of greedy creeps imaginable!

I've been telling everyone I knew that prices... especially relative to incomes...have been going WAY up, and that the inflation index numbers were some sort of voodoo mathematics. Hell! You can see it at the grocery store every day!

Then the STUPID retailers want to know why nobody was spending $$ at Christmas! They finally decided (as per the NPR program I was listening to) that everyone had the flu during the Christmas season, and didn't shop!

Yeah, right.

:puke:


:kick:

[Gingersnap]

19. kick!

Gee, why aren't they reporting on this in the WSJ? /sarcasm off/

[ctex]

20. Is there any evidence that the new weightings are wrong?

The CPI weightings have been changed many times before. When the BLS does so, the arguement they give is that the new weightings are more acccurate. Also the practice is to back calculate the index whenever the weightings are changed to minimize the chance of an abrupt change in the index.

The CPI measure tracks how a urban, non-homeowning, wage earner spends his/her paycheck. This is why health insurance expense has a low weight -- e.g., if you belong to the UAW or USWA or similar union, your health insurance is very expensive, but since your employer pays nearly all of the cost it has little impact on your cost of living. Conversely, if you work at McDonalds your employer doesn't provide health insurance, but you probably don't make enough to afford it yourself -- again health insurance is small or nonexistent portion of your cost of living. (Out of pocket health expenses is another matter).

[cthrumatrix]

22. natural gas prices / energy prices alone suggest rapid inflation

measuring the same basket of groceries (year over year) suggest a 11-12% increase in food.

You can fill in the blanks in real estate taxes and other insurances

People who sell real estate tell me their costs for running thier business (paper, advertsing rates etc...) is waaay up.

The CPI factor needs adjustment..unless YOU DONT WANT REALITY

[ctex]

25. Still a reduced weighting for energy may be correct.

I say "may be", because I don't have the information to draw a firm conclusion.

One must understand that differential inflation rates between various products and services will automatically increase the weighting of those items which increase the most in price. However, if there is any demand response (e.g., switching from beef to chicken when beef prices soar), it is necessary to reduce the resultant weighting for those items which one consumes less of in response to higher prices.

Most consumers change their basket of groceries over time, buying more of what they believe is reasonably priced and less of the over-priced items. Assuming a fixed market basket is a bad assumption -- hence the need for changing the weightings.

Also, the expenses for running a real estate firm do not belong in the CPI (Consumer Price Index).

[BuckeFushe]

27. When will the inflation figures tied to the declining dollar show up

Or will they try to gloss that over too? This months reports should start to reflect that.

53. PPI intermediate and crude shows inflation due to dollar drop already

Since some companies have their ENTIRE operations overseas (NOT IN DOLLARS) or outsource overseas, they see a benefit when foreign currency is converted to dollars--the last step. That is, manufacture overseas AND sell overseas, and bring the dollars home! Make in Brazil, sell to China, convert to dollars!!! The globalization wet dream.

So AS LONG AS THE JOBS ARE OVERSEAS, they can have high inflation in the US--it will keep the jobs overseas.

Also I think cheap imported goods will run out at some point and inflate the CPI--unless they hack it more. Things like furniture.

http://www.bls.gov/ppi/home.htm

Crude core
+4.3%(p) in Nov 2003

I think 4.3 percent is a record jump, and comes back to back with others, for an annual rate of over 20 percent, another record high.

2003 2nd half 1.7 2.2(P) 2.3(P) 3.1(P) +4.3(P) +Dec

http://data.bls.gov/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=WPSSOP1500&output_view=pct_1mth

52. Yes but

Just consider the health insurance premium is weighted at a tiny fraction of one out of 100. Assume a budget of 100....

Also, I used the higher-level baskets for CPI comparison (i.e., "Fuels and utilities" vs. "heating oil" or "nat gas"), so the switching question is ruled out.

[BuckeFushe]

21. Watch the dollar become wallpaper by the end of 2004

Bush and his minions cooked the books. This should be a wonderful debating point for our candidate as the economy tanks inspite of the cries of "all is well" from the boys at South Bush.

[cthrumatrix]

23. now tell me who has been buying all the gold?

[BuckeFushe]

24. BushCo? Carlyle? Halliburton? Wal-Mart?

The players bought a long time ago in euros. The fools are buying now, because the players are driving up the price and selling in euros, profitering from their efforts. Do any of you think the markets aren't being manipulated?

[pacifictiger]

26. cooking the books has been a gut feeling I've had

for some time now - no evidence, but gut instinct. Interesting to hear some facts starting to come out around this issue.

51. It just makes so much sense

I feel bad, but this isn't so surprising.

Almost all of Wall Street was cooking the books...why not those who give data to Wall Street? Even IBM by golly.

And Ken Lay is Bush's best friend, and he was the first!

Count up the number of bad accounting scandals over the last few years, usually one new one every day in the Wall Street news....


Dan

50. That is a good point

Do you think that someone else figured this out before I did?

Gold HAS been going up, and the dollar down...!

Dan

56. All IS Well

NO inflation LOOK!

Oil prices in 2003 averaged highest in 20 years
NEW YORK (Reuters) — Instability in oil producing nations like Iraq, Venezuela and Nigeria helped boost U.S. crude oil prices to an average of $31 a barrel in 2003, the highest yearly average in more than 20 years, energy experts said Wednesday.

http://www.usatoday.com/money/industries/energy/2003-12-31-oil-prices-2003_x.htm

[tom_paine]

28. This is so totally telling us what we already know

(not that I am not grateful for corroboration)

Everyone knows Totalitarian Societeis like Imperial Amerika is tramsitioning towards doctor all their numbers grotesquely.

Of course, like everythin else in Amerika, these buraeus and departments have one foot in the sunshine of the Old Republic and one foot in Bush's Dark Empire.

I imgaine the believablity of statistics coming from these institutions are equally schizophrenic, trying to adhere towards the Old Rules and being pressured and purged into doing Soviet-style accounting for the Emperor.

We can easily see which side is gradually gaining the upper hand. Which makes sense because it would be truly astonishing to see Imperial Bureaus and institutions moving in the opposite direction (towards glasnost, as it were) of the nations as a whole (towards Free-Market Sovietization).

So, yes, I've known for quite awhile that Imperial statistics coming out for at least the last 2 years were as believeable as a Soviet Toilet Paper Production Report.

And these are the Good Old Days. Things are poised to get much, much worse.

[bain_sidhe]

29. Just so I'm clear...

they revised how the CPI is figured because the costs of some things that people *have* to buy were going up, and that's bad, so we'll reduce the weighting on the things that are going up, and increase the weighting on the things that are going down. Then all will be well!

Whew, I almost got worried that there might be some inflation going on!

[htuttle]

31. That's right

Food is not getting more expensive.
You are not hungry.
These aren't the droids you are looking for.
You may go now.

[Skittles]

30. serious math problems = cooking the books

the bastards have been lying their asses off

[TacticalPeek]

32. This answers the question:

What would Kenny Boy do?

[DBoon]

33. You mean you don't believe the official statistics?

I believe they are all true, especially the joyful announcement from the Ministry of Plenty that the chocolate ration has been raised-from thirty grams to twenty!

[htuttle]

34. Double plus good!

This calls for a celebration! Let's drink the last of the Victory Gin!

[Ilsa]

35. Why should the govt. behave any differently than the crooked

corporations that are cooking their books?

My friend used to do variance analysis for a large financial institution and he got laid off. He used to find billion dollar variances that had to be corrected. They aren't replacing him in his job, and told him they hope the accounting law of means and averages will take care of it!

[leesa]

45. The crooked corporations ARE the government...most are

corporate heads many times over or have been purchased many times over by corporate heads.

[Danieljay]

36. Like my Daddy said: "Son, figures lie, and liars figure"

no surprises here.

[ctex]

37. The decision to change the weights was made in Dec. 1998

The following is from the CPI report for June 2002.

Changes in the Consumer Price Index in 2002

Expenditure Weight Update

As announced in December 1998, the Bureau of Labor Statistics (BLS) has updated the consumption expenditure weights in the Consumer Price Index for all Urban Consumers (CPI-U) and in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the 1999-2000 period, effective with release of data for January 2002. The newer weights replace the 1993-95 weights, which were first used in the index effective with January 1998 data. Additionally, CPI expenditure weights will be updated at two-year intervals subsequent to the 2002 updating. Thus, for example, CPI expenditure weights will be updated to the 2001-02 period effective with release of CPI data for January 2004.

Historically, the introduction of a comprehensive new set of expenditure weights attached to the categories of goods and services in the CPI "market basket" has taken place in the context of the periodic major revisions of the index. Such major revisions have taken place approximately once each decade—in 1940, 1953, 1964, 1978, 1987 and, most recently, in 1998.

The goal in employing more current expenditure weights is to have the CPI reflect, as much as possible, the inflation currently experienced by consumers. More specifically, the use of more current weights will help to ensure that the relative importance of CPI item categories, such as food away from home, college tuition, or medical care services, more accurately reflects how consumers are allocating their spending.

[bobbyboucher]

40. The article says between 2001 and 2002,

that the descrepencies appear. December to December. It says nothing of 1998. Where did you cut and paste your info from? Link? Can you connect it to the article?

[ctex]

46. See if following the link works

http://www.bls.gov/news.release/archives/cpi_07192002.pdf



This is a 26 page PDF file and the relevant info is on page 5. The article says (1) the decision to change the weights was made in Dec 1998; (2) the weights would be based on the 1999-2000 period; and (3) the new weights would first be used for the Jan. 2002 CPI report.

54. But Wait!

The base weighting for health insurance premiums is off by a factor of twenty. That is not explainable by that document.

The period 1999-2000 represented an economy where zillions of corporate balance sheets were screwed up. How could they possibly count that period for base purposes?

The seasonal weightings of the PPI shifting energy from winter to summer in 2003 isn't explainable from that document. in fact, the reference says seasonality is JUST THAT--an adjustment for weather!

How could something like a weighting for eductional costs or board go DOWN AT ALL during any period sampled for weightings after 1990? No possible explanation I can think of.

With all these problems, how can they be placing so much on this one statistic, when others show an inflation EXPLOSION. The CRB index is at an ALL TIME HIGH.

OIL PRICES have the highest prices in twenty years (see news story).

Oil prices in 2003 averaged highest in 20 years
NEW YORK (Reuters) — Instability in oil producing nations like Iraq, Venezuela and Nigeria helped boost U.S. crude oil prices to an average of $31 a barrel in 2003, the highest yearly average in more than 20 years, energy experts said Wednesday.

http://www.usatoday.com/money/industries/energy/2003-12-31-oil-prices-2003_x.htm

[ctex]

58. The weighting for health insurance isn't off by a factor of 20

What the nation spends on health insurance does not enter into the CPI. Only that portion paid directly by an urban wage earner enters into thte CPI calculation. Most health insurance is paid by employers and would not enter into the CPI. Another large chunk is paid for by retirees, self-employed and wealthy individuals and none of these classes figure into the CPI calculation either.

60. 20x was most correct (but maybe low)because I already knew that

You are right in theme, but I am ahead of this already.

The AMA survey clearly breaks out the individual portion (approx 2000) against the larger employer portion. You have to take that 2000 against the average income...

So the approx of 20 (5/.25) for health premium remains, and is probably LOW,because retirees and the unemployed pay the WHOLE premium!!!!

Whoops

Dan

[54anickel]

38. Hmmm, Me thinks we've been set up by the poster!

[RainDog]

42. Can someone explain the significance of this issue

to a Joe(sephine) Blow like me?

The CPI is important because?

The Figures were changed in 1998 because?

The figures noted in the link to start this thread are different because?

The figures, whenever they were changed, or why, matter to the economy because?

Thanks in advance!

[happyslug]

48. See my thread below

But in a nutshell, the CPI is used to index various contracts and government program. If you change the CPI, less people become elegible for help from the Government (and what benefit they do get is reduced). This all occurs WITHOUT ANY CONGRESSIONAL ACTION.

As to private employers, many use the CPI as a guide to raise their employees wages each year, again if the CPI is reduced, less increase in wages (also many union contracts have automatic raises to reflect inflation based on the CPI).

This this affects almost everyone indirectly (and many people directly).

49. Exactly

They need some oversight here....!

Like, the banks generated a bunch (1+trillion $) of home loans last summer based on the CPI.

And social security checks are based on the CPI (when it is reported as lower, checks are lower)

And the stock market went way up because supposedly the economy is recovering (but if people are really getting nuked by other costs, there is a big problem).

Dan S.

I updated my web page.

[RainDog]

55. Thank you for the explanations

if these numbers are "funny" -- it seems they would help Norquist, et al, in their quest to destroy the social safety net by "drowning the govt in a bathtub," plus allow Bush to try to undercut some of the deficit by cutting spending surreptiously.

btw, I've been reading a book from a guy who predicted the fall of the USSR way back in 77. He says that America's moment as an empire is already on the way out, and has been for a while, and he doesn't want the rest of the world to make the same mistake about the US that it made about the USSR's power and solvency, so that the world will not be unprepared for a decline in America's real power (as opposed to the ability to make a military stink.)

...and even there, the author, Emmanuel Todd, says that our military cannot be sustained, or maintain us as a power without the economic capacity (i.e. having a real manufacturing base, and not living off consumption).

It's an interesting book, called After The Empire. Some of us on DU are starting a discussion group about the book on Thursday. It would be great to have people with knowledge of economics who could provide perspective. Check out the Editorials forum on Thursday.

But Todd had an interesting quote in which he talks about the rest of the world looking at the US and thinking we've lost our minds (or at the least, our way) because no one can know if our govt is telling the economic truth or not anymore, in light of the way Enron and Arthur Anderson was handled, plus the "voodoo economics" that is guiding present govt policy.

[Fovea]

43. America, the insolvent

From coast to shining coast, from board room to cabinet meeting,
it is one Anderson accounting shell game.

If * is re-elected in 2004, it will be a vindication of the Stockholm Syndrome writ hideously large.

Who could possibly straighten it out?

[happyslug]

47. Look at the Federal Government "Standard of need"

The "Standard of Need" was developed during the 1960s to reflect what a person Needed to earn to live. It is the basis for a lot of Federal Program. For example the Federal Government will pay 1/2 the cost of any States Welfare costs up to the Standard of Need, Most states (and I think at present it is ALL STATES) do NOT match the feds up to that level, so each states welfare grant is less than the Standard of Need. On the other hand the Federal Government fully funds Supplemental Security Income (SSI) to the Standard of Need.

Since the 1960s the Standard of Need has increase each year based on the Previous year's inflation (This is set by statute so the Department of Labor has to use the same standard each year. This is Inflation-index that the GOP always use to complain "exceeded real inflation". It is mandated by law to be use to increase the Standard of Need. It has jumped this year (remember the increase is effective January 1st of the year AFTER the inflation has occured, so the numbers below are the previous year's inflation).

The standard of Need for the last few years are a follow:

2002 - $547.00
2003 - $552.00 - an almost 1% increase
2004 - $582.00 - an almost 5% increase

Note, a 5% inflation rate in 2003, while The President was claiming a much lower rate. Given that the Federal Reserve rate is 1.25 (and .6 of that goes to the seller of the bond so the effective rate is really .8%) inflation is at 5%, the Federal Reserve is GIVING AWAY TAXPAYER'S money at the rate it is charging (the the economy still stagnate, this is what Japan tried to do in the early 1990s and it failed for Japan).

How much higher will inflation be in 2004? Double Digits? The Federals Reserve rate has historically always been 2% over the inflation rate (Slightly higher when the Fed wants to kill inflation, slightly lower if the Fed wants to encourage inflation). Right now the Fed rate is 4% BELOW the annual inflation rate. And you wonder way people think this will bust soon.

[RainDog]

57. btw, this article was useful for me

to understand a little bit about the problems we may be facing sooner rather than later. I'd posted in on another thread in the economics forum, but if the books are really really cooked, ala Arthur Anderson, via Bush's "faith-based" economics and Greenspan's lies, seems that knowledge of this could lead to a sooner rather than later scenario.

oh, and I read in Monday's WSJ about how great things were, and how Greenspan was crowing about his all-wise manuevers...plus the huge uptick in the markets (which seems to me to just be an example of giving the richest of the rich more money to play with among themselves with the structure of Bush's tax cut, and nothing to do with actual economic performance, but what do I know?-- sort of like the so what news of increased productivity, considering the unemployment numbers...)

http://www.monthlyreview.org/1203duboff.htm

Volume 55, Number 7

U.S. Hegemony: Continuing Decline, Enduring Danger
by Richard B. Du Boff
Professor Emeritus of Economics, Bryn Mawr College.

(good intro and lots of data before this..)

...In global finance, the United States is not only less dominant, but vulnerable. The weak link is the dollar, whose status as the world’s key currency has been eroding since the 1970s, irregularly and with periodic revivals. Between 1981 and 1995, the share of private world savings held in European currencies increased from 13 percent to 37 percent, while the dollar’s share fell from 67 to 40 percent. Forty-four percent of new bonds have been issued in euros since the new currency was introduced in 1999, closing in on the 48 percent issued in dollars. Half the foreign exchange reserves held by the world’s central banks were composed of dollars in 1990 compared to 76 percent in 1976; the proportion rose back to 68 percent in 2001 because of the phasing out of ecus (reserves issued to European banks by the European Monetary Institute) to make way for the euro.2

For the first time since the Second World War there is another source of universally acceptable payment and liquidity in the world economy—at a moment when the U.S. balance of international payments is chalking up record deficits.
Since 1971, when the United States had a deficit in its trade in goods (merchandise) for the first time in seventy-eight years, exports have exceeded imports only in 1973 and 1975. A nation can run deficits in its trade in goods and still be in overall balance in its dealings with foreign countries. Deficits in trade in goods can be offset by having a positive balance in sales of services abroad (financial, insurance, telecommunications, advertising and other business services) and/or income from overseas investments (profits, dividends, interest, royalties, and the like). But the U.S. merchandise deficit has become too big to be paid for by services sold to foreigners plus remittances on investments.

The U.S. current account (the sum of the balances in trade in goods and services plus net income from overseas investment), almost constantly in surplus from 1895 to 1977, is now deteriorating sharply; the merchandise deficit has become too big to be paid for by services sold to foreigners. And since 1990, the positive balance on investment income has been shriveling as foreign investment in the United States has grown faster than U.S. investment abroad. In 2002, the balance turned negative: for the first time the United States is paying foreigners more investment income from their holdings here than it receives from its own investments abroad.

Like most gaps between income and expenses, the current account deficit is covered by borrowing. In 2002, the United States borrowed $503 billion from abroad, a record 4.8 percent of GDP. When foreigners receive dollars from transactions with U.S. residents (individuals, companies, governments), they can use them to buy American assets (U.S. Treasury bonds, corporate bonds and stocks, companies, and real estate). This is how the United States turned into a debtor nation in 1986; foreign-owned assets in the United States are now worth $2.5 trillion more than U.S.-owned assets abroad. By mid-2003, foreigners owned 41 percent of U.S. Treasury marketable debt, 24 percent of all U.S. corporate bonds, and 13 percent of corporate stock. U.S. companies are continuing to invest abroad, but unlike the British Empire in the decades before the First World War, the United States is unable to finance those investments from its current account. By contrast, Great Britain’s current account was in surplus, averaging 3 to 4 percent of GDP every year from 1850 to 1913, when income from services and foreign investment was larger than its merchandise trade deficits.3

So far the global investor class has seemed willing to finance America’s external deficits, but it may not be forever. The deficits are exerting a downward drag on the dollar, arousing suspicion that the United States favors a cheaper dollar to help pay off its ballooning trade deficit. As the dollar declines in value, the return to foreign investors on dollar-denominated assets falls. German investments in choice office properties in New York, San Francisco, and elsewhere were cut back sharply in 2003. While the buildings were becoming cheaper in euros, rents were shrinking when converted from dollars back home. “We can get the same return in Britain and the Nordic countries, so why go to the United States, where the currency risk is greater?” asked the chief investment officer of a Munich-based property fund.4

Until recently all Organization of Petroleum Exporting Countries (OPEC) sold their oil for dollars only; Iraq switched to the euro in 2000 (presumably terminated with extreme prejudice in March 2003), and Iran has considered a conversion since 1999. In a speech in Spain in April 2002, the head of OPEC’s Market Analysis Department, Javad Yarjani, saw little chance of change “in the near future... in the long run the euro is not at such a disadvantage versus the dollar. The Euro-zone has a bigger share of global trade than the US and...a more balanced external accounts position.” Adoption of the euro by Europe’s principal oil producers, Norway and Britain, could create “a momentum to shift the oil pricing system to euros.” Thus, concluded Yarjani, “OPEC will not discount entirely the possibility of adopting euro pricing and payments in the future.”5

If foreign investors get cold feet, ceasing to invest in U.S. industries or selling off their dollar holdings, the dollar would start falling faster. Interest rates in the United States might surge, borrowing money would become harder, and consumers would pay more for imported goods, draining income from other purchases and dampening the economy. A dollar rout could cause skittish investors to dump U.S. stocks and bonds, sending Wall Street into a dive. In any event the dollar is now perceived to be as risky an asset as the euro and possibly two or three other currencies (yen, sterling, Swiss franc).
...and more...

[papau]

59. nice write up of the problem :-)

I still can not find any new Bush inspired tweaking of the CPI calculation procedure (unlike the Bush new seasonal adjustment and new counting rules for unemployment).

I agree with Richard B. Du Boff as to the eventual result of the crazy economics of the Bush administration - only pointed at getting him through the next election after which we will hear

"it would have been worse if I had not done "it", and I inherited the problem, and it's a worldwide problem, and my favorite "I lead and have a plan and those that are critical have no plan of their own" - as if not doing the stupid moves Bush is doing is not a "plan".

[wetbandit2003]

61. Riiiiiiighttt!!!!

;-)

[Beetwasher]

62. It's like treating a slashed artery

by slashing another artery and saying "well, at least I have a plan and I'm doing SOMETHING!"

[ProfessorGAC]

63. Told Ya So!

Been saying for 3 months that the economic "success" is just not so. Had other DU'ers argue with me about it.

Now who's laughing?
The Professor

[papau]

65. :-) <grin> Yes you did!

but will the bubble burst by June so it gets some media attention in September?

Any later and the media will not allow "doubt" to affect election.

[mouse7]

64. Could you do a thourough breakdown of this?

A complete breakdown of this with the math simplified for those calculation-challenged like me would be really appreciated. Maybe put it on your web page?

[RainDog]

66. kick- this pertains to that new IMF article, no?

the world is worried about US solvency.

Considering Bush's track record as a failed businessman, and his need to have his daddy's rich buddies finance him to gain access to power, then keep him afloat, then bail him out , and considering Bush sold off his shares of Harken and left regular investors to suffer, considering Bush illegallly failed to report his sell off of Harken stock for six months...

guess this is just business as usual...

one other question, though- even if the Euro gains against the dollar, if the dollar and the US economy implode, that would hurt the entire world economy, right...

and wouldn't that also hurt the euro?

(on a side note- I just caught the tail end of a discussion of global labor/trade on c-span from the Brookings Institute.

one guy said that the US was going to be a third world economy in 20 yrs. --maybe his prediction was a little optimistic, with Bushonomics