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Inflation Actually Near 10% Using Older Measure

Tuesday, April 12, 2011 - 7:17 PM
If your head isn't spinning from information overload already, here's more:

http://www.cnbc.com/id/42551209
After former Federal Reserve Chairman Paul Volcker was appointed in 1979, the consumer price index surged into the double digits, causing the now revered Fed Chief to double the benchmark interest rate in order to break the back of inflation. Using the methodology in place at that time puts the CPI back near those levels.

6
MikeMike327 posts since
Feb 22, 2010
Rep Points: 876
1. Tuesday, April 12, 2011 - 8:15 PM
MIT's Billion Prices Project index is also showing inflation starting go far above the official CPI numbers.
2
Ken TuminKen Tumin5,469 posts since
Nov 29, 2009
Rep Points: 125,053
2. Tuesday, April 12, 2011 - 9:15 PM
Reagan changed any number of ways to calculate things so the numbers would look better. For instance, in addition to how inflation was calculated, he also changed how the unemployment rate was calculated to make it look plenty lower than it otherwise would be, by adding in the more than half a million people in the military to the unemployment calculation. I wonder how much higher the unemployment rate would be now if calculated via the pre-Reagan method.
2
me1004me1004370 posts since
Jan 16, 2010
Rep Points: 2,568
3. Wednesday, April 13, 2011 - 3:49 AM
Me1004, I remember earning 10% interest in savings accounts, while cds paying 16% were available back around '82. I think gold was approaching 900 oz. in late '70s early '80s too. Do you remember when the ways of calculating changed? And did that change effect interest rates then like it could be now? Gold seems to be reacting like it would have then... along with other things. Of course, today's 300,000 house was only 30,000 then, too... and a nice new car could be had for a lot less...
2
MikeMike327 posts since
Feb 22, 2010
Rep Points: 876
4. Wednesday, April 13, 2011 - 7:42 AM
I remember 17.4% unemployment in Michigan in Jan of I think 1984. I also remember  13% mtg. rates and 15% CD rates. These times are bad but at least we are not dealing with high interest rates for those in need and see have not seen gasoline prices go up 300%. Have receipts paying 17.9 a gallon to fill our oil tank in 1974 and in 1980 it was 35.9 and in 1982 it was $1.06 a gallon. We had a 2000 gallon tank and did not get oil in 83 and 84 because of the price but if I remember correctly it was near or over $2 a gallon and we heated partially with wood.
2
Ally6770Ally6770909 posts since
Jan 16, 2010
Rep Points: 2,643
5. Wednesday, April 13, 2011 - 11:02 AM
Mike: I don't recall the specific year Reagan changed the way unemployment was calcuated. Not before 1982, but whether 82, 83, 84, 85, I don't recall. I do believe it was no later than 85.

Unemployment in Michigan was an aberration, just an isolated pocket. Nationally it was nothing like that. We now have notably higher national unemployment than we did back then. As I recall, Volker had the Fed rate up around 13%. The fed rate was the main thing affecting savings rates. Calculation of unemployment or inflation was not directly affecting banks rates, but that is what affected decisions about the Fed rate. And Volker targeted inflation as the biggest danger for an economy, something that absolutely had to be contained.

Speaking of the "good" old days, I recall how through the 1970s, 5% return was the standard for regular savings accounts at banks, and 5 1/4% at savings and loans (which don't even exist any more). The federal government set that as the maximum, and pretty much all the banks gave that. CDs paid a bit more. Those rules started getting changed in the late 1970s, and now savers are being royally ****ed. Yes, it did coincidentally provide for high rates under Volker, but not since. Since that one time under Volker, the only way you get 5-6% on your savings is by locking it up in a CD (and hoping they don't change the terms ala Fort Knox CU!), and that only some times, entirely too few times, not now (and not for any time in the foreseeable future).
1
me1004me1004370 posts since
Jan 16, 2010
Rep Points: 2,568
6. Wednesday, April 13, 2011 - 11:11 AM
It seems the CPI now is more biased to the price of flat-panel televisions, lap-top computers, and other imported electronic devices that have been plunging in price. The problem is one can't put these devices in the fuel tank or serve them for dinner. Perhaps Chairman Bernanke should try a flat-panel pizza for a change. Prices for necessities have been rising rapidly with the spike in commodity prices. The Chairman characterizes this as "temporary" and sees no need to slow-down quantitative easing or even hint at a rate hike. The man is not a dolt however. He has created the greatest stock market bubble since Greenspan's debacle, enabling record earnings and bonuses on Wall Street. After all, that is the goal, isn't it?
4
ShorebreakShorebreak2,607 posts since
Apr 6, 2010
Rep Points: 14,112
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