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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: bart13 who wrote (91294)	2/5/2008 9:46:54 PM
From: John Vosilla	Read Replies (1) \| Respond to of 110194

Thanks Bart..lots of interesting stuff.. Seems 10 yr treasury minus (CPI + lies per shadowstats.com) is a big key to keeping the house of cards from totally crumbling... A coincidence M3 stats are no longer published? This on Hedonics tells a lot... 'Literally it means relating to pleasure. But in an economic sense in US statistics, it involves adding or subtracting values to important government statistics like CPI or GDP that cause them to be false or incorrect. One general example is in the computer area. If you bought a $2000 computer 3 years ago, and then replaced it with another $2000 computer today that is twice as fast, it can (but isn't always - this is a general example only) be counted as roughly a $4000 computer in the GDP since its twice as fast. This completely ignores that a computer that is twice is fast does not double the amount of work done by or with that computer, or even close. According to Pimco’s Bill Gross, the US Bureau of Labor Statistics has expanded the use of hedonic adjustments and applies these adjustments to everything from computers, DVDs, automobiles, washers/dryers/refrigerators to college textbooks. Hedonics is used to adjust as much as 46% or more of the weight of CPI. Another example is in housing. The government currently assumes that housing costs are about 40% of the Consumer Price Index (source, PDF file). Prior to 1982, the housing cost numbers were based upon what you actually spent for the house and the related mortgage. After 1982, the Bureau of Labor Statistics (BLS) began to use what is known as "owners' equivalent rent of primary residence" for the housing portion of the CPI. This is based on an economic theory that says that homeowners are essentially leasing the houses from themselves and paying implied rent for that service. In June 2005, for example, just this factor alone caused CPI to be understated by over 4% for the month. Various studies have shown that "Owner's Equivalent Rent" adjustments can compose as much as 24% of changes in the CPI. "Using BLS statistics, health care costs are about 17.5% of consumption, but it is weighted much less in the CPI calculation. Healthcare is 4.6% of CPI; healthcare commodities are 1.5% of CPI. Healthcare is reportedly 15 to 17% of GDP. This presents a huge discrepancy in CPI weighting. If CPI healthcare costs were in tune with reality AND they had an accurate weighting, CPI would be substantially greater" There is also something called "substitution bias" that is used by the US Bureau of Labor Statistics to falsely adjust the CPI. One example is meats like beef, chicken or pork. If beef price goes up a lot and chicken doesn't, the BLS assumes that more chicken is bought and adjusts the food portion of the index. This is a false activity, even though it may reflect what people actually do, since it prevents valid longer term comparisons due to the actual index having different things in it over time. Its also false since it hides the price rise in beef. Another example is cars - if SUV prices goes up a lot and smaller cars don't, the BLS assumes more smaller cars are bought. This is also false since it also hides that the standard of living is going down - eating chicken instead of beef, or buying smaller cars is generally considered to be evidence of a lower standard of living (setting aside any political or environmental type issues). Source 1 Source 2 Another issue with hedonically adjusting for better or faster products is that the reverse is not done. In other words, if the quality of something drops over the years no adjustment is made for it. One example would be solid wood furniture versus using a thin veneer. Many elements of the CPI are also adjusted on a "geometric weighting" basis. In plain english, that simply means that items where the prices are going up the fastest receive a smaller weight in the CPI than in previous periods. Items that are going down fast have their weights increase'