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April 22, 2006

Is the penny dead?

It is probably a matter of time when the U.S. Mint will have to stop making pennies. In 1982, the price of copper rose above the intrinsic value of the penny. Now, its substitute, zinc, has done the same. Steel might be the next metal of choice. It is sales taxes that keep the penny in heavy use. I've noticed that some cashiers are rounding off change to the nearest nickel when there is a penny difference. A penney is so insigificant now, it doesn't matter. More

When prices go up, consumers are most likely to blame the messenger, the retailers and businessmen. In actuality, it is the federal government that dilutes the purchasing power of money by creating whatever amount it needs to make up for its budget shortfalls. Though the world's central banking systems are all inflating to keep their currency differences about on par, they can't alter the disparities with commodities. Thus, it is not that commodities are getting more valuable; it is the declining puchasing power of paper money that buys less commodities.

This country has been in a long inflationary cycle since WWII. Once these cycles start, they feed on themselves. At some point it is inevitable for this inflationary cycle to end in a deflationary collapse. But for now, expect prices to rise faster than your earnings.

Posted by Ray Hewitt at 06:33 PM | Comments (0)

April 02, 2006

Street economics trump government statistics

The cost of homes has risen out of reach. Medical expenses are on the run. Costs are increasing everwhere and our wages are not keeping up. If you lose your job, you're lucky to find a new one. Yet government statistics say the economy is booming. What gives?

What gives is that the statistics are being massaged to hide the underlying weaknesses. I'm citing the findings of economist Walter J. Williams who has made a living on reading the fine print in government economic statistics. Shadow Statistics

If unemployment was calculated the way it was done during the 1930s, it would run about 12%. The first change in statistics was a "discouraged worker" category that treated unemployed separately. Now they are not counted at all.

The Consumer Price Index (CPI) would be about 8%. The original statistics measured the changes in a fixed basket of goods over time. The index was changed to allow substitutions that in effect measure the cost of survival. If the CPI was calculated the way it was during the Carter years, Social Security checks would be 70% higher. Secondly, if a product is improved, it is calculated to have gone down in price.

The Domestic Gross Product (GDP) overstates growth by 3% year to year. When inflations is understated, real growh is overstated. If you are a homeowner, you are considered to be paying yourself rental income. This in turn jacks up household income which is actually dropping.

Federal budget numbers are kept on a cash basis with no accruals made for future obligations. If set-asides for Social Security and Medicare were counted, the deficit would be $3.4 trillion, not the reported $616 billion. Total federal obligations at the end of September were $51 trillion, over four times the GDP.

If you comprehend what this means, get your debts and living expenses as low as you practically can. It looks like the economy is in the early stages of slipping into an inflationary recession. Wages won't keep up.

Posted by Ray Hewitt at 04:38 PM | Comments (0)

Runaway Debt

America has become a nation that is piling up debt faster than it is creating new wealth. The lastest statistics show signs of a dangerous rate of acceleration. Link

Posted by Ray Hewitt at 02:18 PM | Comments (0)