“Don’t get rid of the penny. Rename it the dollar.”
– Bill Maher
This CNN article says that food prices increased 23% from 2006 to 2007:
The world’s poorest nations still harbor the greatest hunger risk. Clashes over bread in Egypt killed at least two people last week, and similar food riots broke out in Burkina Faso and Cameroon this month.
Commodity prices pulled back some last week, but if you look at long term charts it’s easy to see why the cost of bread is going up. Here’s wheat:
They all look like that.
Remember how the Fed stopped reporting M3 money supply two years ago? They said it didn’t really add any information that wasn’t contained in M2, so they were going to stop keeping track of it. According to this guy, the Fed said they would save $1.5 million per year by not reporting it (that’s 1/3 the price of one tomahawk cruise missile, by the way). All the wingnuts went ballistic accusing the Fed of trying to hide the fact they were going to debase the dollar to reduce the deficits, pay for the war, and bail out banks.
Luckily, John Williams had some free time and took over charting it for them:
The wingnuts were correct. The red part of the M3 line was tracked by the Fed. The blue portion is John’s continuation. Ben Bernanke ought to send John a check for his hard work. I don’t want to speak for him, but I’m sure $1 million would be fine to cover the last couple years. That’s 1/3 what the Fed would have spent doing it themselves.
- M0 = actual bank notes and coins
- M1 = M0 + checking accounts
- M2 = M1 + money market accounts + CD’s under $100k
- M3 = M2 + everything else (CDs over $100k and dollars held in accounts outside the US)
John has also been keeping track of the CPI ever since the Clinton administration changed it. CPI is a fancy acronym for a basket of goods. Somebody at the US Bureau of Labor Statistics heads over to the Safeway every month and records how much bread and milk cost (actually it’s 90,000 different items - they also shop for new britches, batteries, and tires - and they fill up with gas while they’re out).
According to John, in 1990 the BLS noticed that when steak gets expensive people start to buy hamburger, so they changed the index to adjust for that. Ever since that brilliant bit of reasoning, instead of comparing apples to apples, we’ve been comparing apples to oranges (is that what you buy when apples get too expensive?)
The BLS just started reporting CPI to three decimal places. Now we have great precision for an inaccurate number. I say we fire everybody at the Fed and the BLS and hire John to replace them all.
If you’d like to invest in inflation, here’s some ETFs to consider:
- UDN - dollar short (moves inversely to the dollar index)
- GLD - gold
- SLV - silver
- DGP - gold with 2x leverage (moves twice as fast as gold - up or down)
- DBA - sugar, soybeans, corn, and wheat
