The Candian National Post
reports, in an article Gold's
rise points to inflation on David Ranson, president of an econometric
consulting firm. Ranson
defines inflation as a decline in the purchasing power
of a national currency. He prefers that definition to flawed ones like the
rising cost of living or increasing labour costs.
Official
government-massaged measures such as the consumer price index (CPI) do not
detect the onset of inflation as quickly as financial markets, he says. The
latter indicate "current inflation is much higher than policymakers
realize and is still accelerating.
and:
These views seems to jibe with those of the average man
in the street, who feels prices are rising higher than the benign rate
governments portray.
Consumers and investors
experience inflation at what Ranson calls "market-clearing prices."
As we all know from daily experience, such prices can jump quickly. Some
components of the CPI, such as clothing, are accurately picked up but the
index is distorted by the way the United States and other countries account
for housing.
Shelter makes up 37.4%
of the CPI but the U.S. uses what Ranson terms a "mythical figure"
based on old historical data.
Wainright's Proxy Index
of Market-Clearing Consumer Prices eliminates the parts of the CPI that use
historical prices. The revised index showed shelter rose 13% in 2005 and
energy at 16.7%. Food and beverages rose only 2.3%, transportation 0.4% and
food and beverages 2.3%, all in line with the CPI.
However, the weighted
average was 8.4%, which Ranson suggests is "the true inflation rate;
8.4% is what is happening now, which should correlate with the performance of
financial markets, where we always measure what is happening now."
Ranson's views are consistent
with the findings of John Williams, reported elsewhere on this blog.
Both economists are calling attention to the measurement techniques that
produce a politically-motivated unrealistically low rate of inflation.
Ranson also found that
"found rising gold prices predicted rising consumer price indexes in
[six European] nations.". Ranson believes that the gold market is faster
to sniff out inflation in the pipeline than consumer prices. The rising price
of gold over the last six years, according to Ranson:
is giving an ominous early warning on inflation.
However, it takes time before the CPI fully reflects the trend signaled by
gold. Ranson found it takes six years for the CPI to reflect even half the
trend signaled by gold.
"This is a serious
matter," Ranson said. "It's a very big deal if what I'm saying is
correct."
This time lag also
creates "the enormous gulf in opinion" between the conventional
view of inflation and the minority view that inflation shows up first in the
price of commodities.
"One indicator says
nothing is happening at all and the other says something very big is
happening."
Another indicator of ongoing
currency debasement is that the melt value of US currency is now worth more
than its face value. This creates a profit opportunity by melting currency
and selling the metals as scrap. In response the, U.S. Mint
bans melting pennies, nickels
U.S. Mint officials said Wednesday they were putting into
place rules prohibiting the melting down of 1-cent and 5-cent coins. The
rules also limit the number of coins that can be shipped out of the country.
"We are taking this
action because the nation needs its coinage for commerce. We don't want to
see our pennies and nickels melted down so a few individuals can take
advantage of the American taxpayer," Mint Director Edmund Moy said in a
statement.
Officials said they had
received a number of inquiries from the public in recent months concerning
the value of the metal in the coins and whether it was legal to melt them.
The new regulations
prohibit the melting of 1-cent and 5-cent coins, with a penalty of up to five
years in prison and a fine of up to $10,000 for people convicted of violating
the rule.
The rules also require
that shipments of the coins out of the country be for legitimate coinage and
numismatic purposes and cap the size of any one shipment to $100 worth of the
coins.
Robert Blumen
Robert Blumen is an independent
software developer based in San Francisco, California
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