Delving Deeper into the Inflation Issue


"Who are you gonna believe, me, or your lyin’ eyes?"


As the lyrics above note, the consumer knows what the economists do not: There is plenty of pernicious inflation, and it has stubbornly remained in the pipeline. This is regardless of the fanciful notion that so long as we ignore Food and Energy, inflation remains contained.

Of course, this is utter nonsense.

While some have argued that Mr. Market’s rally is proof positive of inflation’s demise, we find little evidence for that line of analysis. As was astutely pointed out in Barron’s Trader column, it is not the absence of inflation but rather the availability of liquidity that matters most to equities: "In
a liquid world, and compared with real estate, bonds or metals, the
stock market manages to look…somewhat safe and chaste. That honor may
seem as dubious as being called the least-ugly contestant in a beauty
pageant, but it was enough for a winning performance."

Thus, our inflation critique is not a diatribe against irrational markets; rather,
this is a screed against those who argue there is little or no

We have outlined our own complaints about the errors in the BLS Methodology ad nauseum. So rather than reiterate our inflation ex-inflation complaints again, today, we are going to turn the floor over, in large part, to Bill King of Ramsey Securities.

Bill has been dissecting the BLS data longer than most of us have been trading. One of Bill’s biggest complaints about the BLS methodology is how they can make "Up" look like "Down."   

Consider what happens when the BLS looks at rent/OER: "They supposedly net out utility payments. So if your rent payment stays constant but utility bills go up, that yields a lower net implied rent. In other words, utility prices going up caused rental prices and CPI to go down.”

That sounds too absurd for even the Bureau of Labored Statisitcs, so let’s go to the BLS site to verify the BLS on its OER methodology:

Calculating Pure Rents – BLS derives data on the monthly economic rent for each renter unit in the survey. The economic rent is the contract rent (including the  value of certain rent reductions) adjusted by the value of any changes in the services the landlord provides. A change in what renters get for their rents is considered to be a quality change, which may be  either positive or negative. The value of any changes is applied to the current economic rent to make it  consistent with the previous data. For example, adjustments are made for most changes in utilities and  facilities. If the landlord stopped providing electricity, a positive adjustment would be made to the current economic rent to make it consistent with the previous data.”

So it turns out to be true: By their own methodology, as Utilities go up, OER rent comes down. That’s truly an Alice in Wonderland construction. But when it comes to utility costs, the rest of the story is even more unreal:

The BLS admits, “The index for household energy declined 0.1 percent as a 0.9 percent decrease in the index for natural gas was partially offset by increases in the indexes for fuel oil and for electricity–up 1.9 and 0.1 percent, respectively.  (Prior to seasonal adjustment, charges for electricity rose 1.7 percent, reflecting the switch to seasonal rates in some areas.)” 

The BLS adjusts a 1.7% jump in electricity costs to only a 0.1% increase . . .

OER is about 40% of core, higher utility rates can produce a significant reduction in Core CPI.

But that’s just the tip of the iceberg. Consider the even more bizarre concept of OER as representative of the entire home-dwelling US public. More than three times as many people OWN THEIR OWN HOMES then rent their abodes. So why do we use Rental Measures for measuring shelter inflation?

King is one of the few people even more apoplectic over this charade than I am. He asks:

"How can any self-respecting economist proclaim that inflation remains contained because less than 26% of the US (% that rent) experience a minor increases in rent?  The scheme originated by Fed CEO Art Burns in the ‘70s to propagandize ‘Ex-food & energy’ as the true inflation measure to divert public attention from escalating inflation, abetted by Street shills and the media, has worked spectacularly."

Here’s the reality about OER: If we wanted to know what inflation really is, wouldn’t we be better off measuring the costs that actual homeowners — that 75% of Americans who own where they live — actually encounter? You know, things like repairs, property taxes, utilities, interest rates, building materials, etc.?   

I suspect you already know the answer to that question . . .   

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  1. Barry Ritholtz commented on Jun 18

    I’ll have some more on this later today

  2. DonB commented on Jun 18

    I’ll feel better now when I see the electricity and oil expenses for my home skyrocket. It’ll be comforting to know that this means that my personal inflation rate is actually declining.

    Previously I thought that many of my tax dollars were being wasted. Here we can see a constructive use of these dollars, with the BLS helping me to understand that rising costs lowers inflation. Isn’t government great?

  3. UrbanDigs commented on Jun 18

    Great post Barry! Its insane to think that rising service costs actually lower inflation data. Great world we live in.

    With this topic so political, I doubt there will be any change to these metrics in the near future, leaving us guessing as to what real world inflation is actually up to.

    All I know is, 6 months ago almost everyone was in the camp of ‘2-4 rate cuts starting in early 2007’. Thankfully, now the markets woke these guys up a bit. We are still in a very liquid and low interest rate world; albeit a higher rate world than what most got used to.

    Like I said before, the good times never last forever and one cant expect cheap money and so much liquidity forever. With the recent rise in rates, do you believe we will trend downward again or that we are in a new trading range of higher highs and higher lows for 10 YR bond yields?

  4. Joe Klein’s conscience commented on Jun 18

    So the whole “up is down, black is white” mantra started under Nixon? That fits, since many of the same important people(Shooter and recently Rummy), played an important part then and now.

  5. David Pearson commented on Jun 18


    It makes no sense: did rising utility costs reduce OER inflation? Or did utility costs decline by .1%?

    How can it be both?

  6. david foster commented on Jun 18

    Isn’t it true, though, that *over time* the OER estimates will correct for energy-price inflation…because landlords will raise rents , where possible, to recapture the additional costs? Specifically:

    1)Apartment is renting for $1000/month, which includes $200/month in utility bills.

    2)Utility bills go up to $400/month. Landlord is now getting screwed, since lease keeps him from immediately raising rent. OER as reported declines.

    3)Eventually, landlord is able to recoup utility costs by raising rent to $1200/month, and this will show up in BLS calculation.

    Also: when an apartment is rented with utilities included, then is the energy component (which is apparently stripped out of OER) included in the household energy index? Because if it is, then it would seem that even in the short term this would correct for the apparent decrease in OER.

  7. wally commented on Jun 18


    Around here, at least, it is pretty rare to have electricity included in the rent.

  8. ECONOMISTA NON GRATA commented on Jun 18

    It’s all so Kaffkaesq with a little Orwellian, and a dash of Shakesperean as well.

    We live in the United States of Illusion.

    Good luck,


  9. ferd mertz commented on Jun 18

    hardly surprising in s nation of debtors. also recall greenspan telling congress back in the mid nineties that CPI overstated inflation. according to john williams at shadowstats, the CPI methodology was changed then to lower reported inflation. he claims a further tweaking is in the works today to lower it further.

  10. Old Ari commented on Jun 18

    My rent increases are mainly due to higher heating costs, and increased taxes. Lovely new word, though,”Depper”.

  11. Matt commented on Jun 18

    Given the apparent problems, wouldn’t it be prudent to begin to construct an alternate inflation measure? Or even adjustthe existing BLS statistics to model “true” inflation better? There are a lot of good financial brains floating around, why can’t we make something better?

    When we someone mentioned the politics of this thing, they were perhaps understating things. The Republicans don’t want to talk about inflation because it happened/is happening on their watch. The Democrats don’t want to talk about it because they either appear crazy (fighting “true” BLS statistics) or like the bringers of inflation (if the Dems scream loud enough that the public really notices inflation, they’ll associate with Democrats, just like the recession of 01 nad 02 was associated with Bush, even though it began before he took office).

  12. DonB commented on Jun 18

    Does anyone know the extent to which this concept influences core PCE? This would seem to be even more important that the impact on core CPI, as core PCE is supposedly the Fed’s preferred measure of inflation.

  13. Bob A commented on Jun 18

    You can’t believe anything you hear from ANY department of this current administration because EVERYTHING is distorted to try to market the political agenda of those currently in office. Financial data is just one pea in the pod.

  14. David Merkel commented on Jun 18

    What would make more sense would be a weighted average of rental price increases (I don’t think utilities are a big issue anymore…), and either:

    1) increases in after-tax mortgage interest rates, or
    2) increases in house prices multiplied by the rollover rate.

    Doing that, one would get a better picture of the actual increases in cash outlay for housing.

  15. will rahal commented on Jun 18

    It is amzing how closely related CPI and consumption of non-durable goods are. The charts are almost indistinguishable.
    Consumption behavior is definitively changing. Wages rose strongly after the 2001
    recesion but the proportion of durable goods to personal consumption actually declined for the first time in five decades.

  16. scorpio commented on Jun 18

    Bob A: exactly right. this administration believes only in disinformation, either about the war or tax cuts for the rich or how the economy’s done so well for the little people on their watch. the Fed has long dropped out of the inflation management business: they now only monitor inflation expectations, and they do that by continually obfuscating the underlying definition. all in the interests of promoting the next stock bubble. this will continue at least until the next election. and probly wont end there. i dont see much of a lobby on either side for real analysis of how the economy affects anyone in this country other than the top 1% and their gofers in the next 9%.

  17. michael schumacher commented on Jun 18

    Love how “investors” send the market higher but when it goes lower it’s just bulls taking a break.

    That’s the theme in just about all of the “articles” on the street.

    “Inflation news sends market higher”-Friday
    “worse inflation reading in 20 months”-Friday
    Instituitions keep saying that “investors” send the market higher because when they cash out and tank it they can just point to the “investor”.

    Snake oil at it’s finest.


  18. Estragon commented on Jun 18

    I (mostly) agree with David Merkel. Rent is a different product than home ownership. Imputing the cost of home ownership from rental is like imputing the cost of car ownership based on transit rates. Rent is rent, and should influence measured inflation only to the extent rent is paid.

    I agree with his first choice for measuring home ownership cost changes (actual mortgage interest costs, taxes, repairs, etc.).

    I don’t agree with the second one though. House price increases result in a cost decrease for those leaving the ownership market (higher terminal value), a cost increase (higher initial value) for those entering the ownership market, and no change for those already in the market. In aggregate, carry costs will capture the real cost change without the complication of forward and backward looking cost changes.

  19. The Financial Philosopher commented on Jun 18

    Why would we wish for greater accuracy or higher quality government and institutional reports? Would that not decrease the competitive edge for the more resourceful, “smart” investors? Would “accurate” government reporting increase our competitive edge or decrease it?

    I’ve followed TBP for several months and have observed that Barry and most of the commentators have consistently pointed to flaws in governmental and institutional economic reporting. I could be wrong but it seems that Barry and many of the readers of TBP have been able to see through inaccurate and unrealistic economic reporting and media noise and leverage that knowledge to their advantage.

    I would argue it is easier to make money with a flawed system than with one that is highly efficient.

    Perhaps we should be careful what we wish for…

    Kent (aka The Financial Philosopher)

  20. Shrek commented on Jun 18

    If we really want to figure out inflation we should target the money supply and credit, but we have ignored those for so long that there is no going back. Its inflate or die until the greatest credit ballon ever collapses. Subprime is a glimpse of everything. Debt ridden.

  21. VJ commented on Jun 18

    Matt posted:

    the recession of 01 nad 02 was associated with Bush, even though it began before he took office

    There were no recessions during President Clinton’s two terms.

    It only began “before he took office“, as it was a direct result of his illegal installation:

    * After eight years of historic record levels of Consumer Confidence during President Clinton’s two terms (as reported by the private-sector Conference Board) Consumer Confidence plummeted by more than 10% when he was falsely announced as the “winner” of the election in November 2000 (the largest drop in over 10 years, not seen since the last recession, during Poppy’s administration, in 1990).

    * Consumer Confidence again plummeted by another 10% when he was appointed by the Supreme Court in December 2000 (again, the largest drop in over 10 years, not seen since the last recession, during Poppy’s administration, in 1990).

    * A 20% back-to-back drop in Consumer Confidence in less than 60 days is a massive shift in consumer sentiment, yet it continued to drop even further in January, February, and March. Given that Consumer Spending comprises some 70% of the American economy, it’s no surprise that the nation’s economy finally sunk into recession in March.

    Therefore, the subsequent recession is quite correctly “associated with Bush“.

  22. michael schumacher commented on Jun 18


    you’d think they got enough mileage out of blaming Clinton for everything. 7 years later and they still do…..

    Plausible Deniability….what a wonderful way to “unite”…


  23. F commented on Jun 18

    Most the time I would agree with you, Barry, but I think you’re wrong here. Assuming it’s done right, it makes sense to remove utilities from OER if utilities are already being included separately. An increase in utilities rates will decrease OER, sure, but it will increase the utilities component, hopefully by an equal amount until, as david foster pointed out, rents rise to compensate. Otherwise, you are counting utilities twice.

  24. David Merkel commented on Jun 18

    Estragon — a good point on my #2. I’ll have to think harder…

  25. Winston Munn commented on Jun 18

    When you tie inflation to price phenomenon, the number of possible measurements is virtually unlimited, as are the inherent problems of what components to measure, how to deal with substitution, and what to do about seasonality. We have Keynes to thank for this absurdity as his book “General Theory”
    became the holy grail of economics with its concept of price phenomena as a seperate event from money phenomena.

    But the Federal Reserve Bank of Cleveland in 1997 published a series of papers on the history of the word inflation, and found that its conception was in the mid-1800s when banks were issuing there own currencies unrelated to the gold standard.
    At its inception, iflation was a term to explain the devaluation of money based on this unregulated and unbacked growth in money supply.

    It wasn’t until the Federal Reserve Act of 1913 and the later Consumer Price Index series in 1919 that the word inflation begain to be connected to price increases, and then Keynes put the nail in the coffin with his book, “General Theory”. It is near impossible to find an economic textbook that does not teach inflation as a price-related phenomenon.

    But it is not difficult to show that money supply is the actual catalyst. As all currency in circulation worldwide is nothing more than an instrument of debt, let us imagine for a moment that all borrowing were frozen for the next 50 years.

    The net effect would be that no new money could be created, as it takes borrowing to create currency. The world would have to operate on its existing money supply for the next 50 years. Without the ability to borrow to pay down debt, debt would have to be paid down with existing currency. When debt is eliminated, so is currency. By freezing debt in this manner, the end result would be a decrease is the money supply.

    A decrease in the money supply would cause a decrease in demand, causing lowering prices. Can you say “California subprice housing market”? You have there a microcosm of this scenario – subprimers cannot borrow; ergo, less demand; ergo, prices for suprime homes fall.

    The key issue to understand is that credit=money supply. Borrowing is required to expand the money supply while debt repayment contracts the money supply.

    When we talk about inflation, why do we leave out the decreasing LBO ratios when that is a direct result of easy credit? Lack of covenants can be thought of as due to inflaionary pressures – with the inflationary pressures in the money supply itself, the money must be turned over quickly in order for value to be maintained. Risk itself is the responsibility of easy money supply; without access to replacement money, a low-yielding bond looks better than a speculative CDO.

    Of course, none of this matters to the markets until a major collapse occurs – because once you are caught on the merry-go-round there is no getting off until the ride breaks down.

  26. Austin Cooper commented on Jun 18

    Based on the ‘logic’ that an increase in utility payments actually cause (what appears to be, in this particular shell game) *perceived* rents to go down —

    Then it seems just as logical to state that, during the upcoming winter months, the higher costs of heating oil in a good chunk of the country must drive those reported BLS rent numbers down to almost nothing!

  27. KirkH commented on Jun 18

    I found the perfect picture to describe how producers hide inflation.

    Those of us in San Diego have highly tuned burrito sensory organs and it’s clear that they’re slowly shrinking burritos to keep costs stable.

  28. Christopher Laudani commented on Jun 18


    More good news from the Commerce Dept, Comrades!

    Due to the strong economic leadership of our Commander and Chief, the Commerce Department has announced glorious news that should interest all hard working, Freedom loving people!

    Through the hard work and dedication of the American worker, the Commerce Dept said today the CPI has fallen to a record low, while prices have risen across the board, thus providing all citizens with an instant boost in income. The American economic engine continues onward and upward. Since our glorious leader eliminated recessions over 100 years ago, economic growth continues at its usual record pace.

    Commenting on the excellent results, our glorious leader said, “It’s double plus good for America! Another Win-Win for all those that love Freedom and the American way of life!”

    All citizens of this great nation should strive to keep prices high in order to secure our future as a nation. Remember, falling prices mean the terrorists have won.


  29. david foster commented on Jun 18

    F…if they *are* counting the energy component separately after removing it from OER, then I’m guessing that they’re including it only in the “non-core” (headline) measurement…so, if this is the case, then an increase in energy costs will initially cause the non-core component to rise (while the core is decreased by the OER reduction) and later, after the landlords are able to raise rents, will cause OER and the core to increase. So the apparent reduction in OER is spring-loaded to return to its previous value.

  30. Will commented on Jun 18

    Barry — this is your best post ever.

  31. Josh commented on Jun 18

    We will know we’re in trouble when this quarter’s GDP is adjusted to the Real Chained GDP with a core PCE adjustment rather than the full PCE adjustment.

    GDP ex energy/food.

  32. Fred commented on Jun 18

    MS and VJ….

    Spare me the bogus history lesson (through your conspiratorial eyes)

    W inherited a strung out economy…that had been living a lie under Clinton’s watchful eye. It was THE ERA OF LIES!..ok to cheat on financials, research reports, bogus partnership agreements, laughable accounting standards, insider trading, etc. Bush inherited a patient high on the “big lie”, “anything is ok, just don’t get caught.”

    I am NOT defending W’s handling of the war, and he has made plenty of mistakes, but the recession was not one of them. What’s interesting is the Pelosi/Reid Congress is viewed as even worse that Bush currently. Throw ALL the bums.

  33. michael schumacher commented on Jun 18


    Each day I think…man Fed will get it someday but each time you post you prove that you still have no clue WTF you are talking about let alone be able to interpret anything without so form of “help”.

    Go back to watching Nascar and wrestling……
    which is about the extent of the intelligence in what you call posts.

    So much for ignoring me….Fred
    you show you can’t even do that.


  34. 8 commented on Jun 18

    What do you think of the fact that both gasoline and food prices are high due to government meddling in the food and refinery businesses? Those increases are no longer due to inflation, as the price of oil has stabilized. Maybe it will resume rising, and I’m sure BLS is understating it, but to me dropping food and gas is beginning to make sense (it didn’t before).

  35. Nova Law commented on Jun 18

    I’d be as angry and resentful of other people as VJ and Michael Schumacher if I had as much…. how do I say this gently….. “bad luck” in the markets.

    Yep – losing one’s ass day after day will make even the most lovable bear cranky and mean.

    Meanwhile, market’s up yet again today, I believe the ticker tape, not perma-bear spin from angry and resentful people. :-)

  36. michael schumacher commented on Jun 18


    fitting post from you as you continue to display the same acumen as Fred

    As in you have no idea….

    but you knew that..


  37. Fred commented on Jun 18

    MS lives in a world of delusion, negativity, and self flatulation, and is quite annoying….

    but we knew that.

  38. michael schumacher commented on Jun 18

    then ignore it…

    you have a choice…apparently you are unable to exercise it….

    you two can be best summed up by two expressions:

    “i told you so” and “how big is your wallet”

    There is no skill is replying to everything with those two answers.

    I guess you DID’NT know that.


  39. Karl Smith commented on Jun 18

    To add to what F said, you have to take out utilities or they will be double counted.

    Now I think Barry is focusing on the point that it is ironic that an increase in Energy prices can actually drive down core inflation.

    To some extent but it actually happens indirectly all the time.

    Suppose that I only have $1000 every month. Now if the price of gas goes up I either have to buy less gas or buy less of something else.

    To the extent I buy less of something else then demand for that item will fall and the price will tend to drop.

    So in the absence of increases in the money supply energy prices and other prices will tend to move in opposite directions.

    They move in the same direction if

    A) The money supply is growing faster than the economy

    B) An increase in energy prices causes economic growth to slow, which could induce (A)

    (B) is the big concern about including energy in the core rate. Should the Fed repsond by slowing the economy when energy prices are already slowing the economy?

  40. Woodshedder commented on Jun 18

    I can’t help but thinking that when the conspiracy theorists join ranks with the perma-bears, that the perma-bears ought to be thinking, “What the hell are we doing?”

    Is that really the company you wish to keep?

    Other than that, I see a lot of people saying that the market “should” be reacting this way or that way. In reality, there is nothing, not past data, not future predictions, that are absolute enough for people here to be saying the market “should” be doing anything. That kind of language is very arrogant and egotistical if you ask me. In fact, I think the market punishes such behavior. Stay humble folks. The market doesn’t care if you’re an “expert.”

  41. IM commented on Jun 18

    Nice post.

    I think that it should be wroten “ad nauseam” instead of “ad nauseaum”.

  42. Winston Munn commented on Jun 18

    To paraphrase Peter Ustinov as Captain Vere in the film version of Herman Melville’s Billy Budd: “We’re not talking about reality here; we’re talking about inflation.”

  43. Old Ari commented on Jun 18

    Why is it that one can’t see one’s spelling errors, until the post appears? Myself included.

  44. VJ commented on Jun 18

    Fred posted:

    W inherited a strung out economy…that had been living a lie under Clinton’s watchful eye.

    You keep making that assertion, but you have never been able to provide any substantiation.

    “W inherited”:

    * The longest economic expansion in our nation’s history

    * The creation of 23 million net new jobs (majority paying higher than the average wage)

    * The lowest national unemployment rate in decades

    * The highest level of workers employed in the national workforce

    * The largest deficit reduction in history

    * Federal budget deficits turned into federal budget surpluses

    * The Poverty Rate declining every year for eight straight years

    Which “W” turned into:

    * The largest federal budget deficits in history

    * Bankruptcies at the highest level in history

    * Home foreclosures at the highest level in history

    * Rising numbers of jobless workers

    * The Poverty Rate increasing every year

    * The savings rate going negative for the first time since the Great Depression

    * The DJIA, in inflation-adjusted dollars, which would need to be over 14,000 just to get back to where it was in 2000

    Stop drinking the Purple Kool-aid.

  45. Matt commented on Jun 18


    I was hoping to avoid this mess with an equal opportunity bashing of Dems and Repubs in my post, but I have to question if you really beleive what you are saying.

    What specific policies did W create that caused a recession? How would a Gore presidency have been different? Since most of the policies people hate on W for were implemented post-9/11 (Patriot Act, tax cuts, War in Iraq, etc.), are you suggesting that the mere presence of W in the WH caused a recession even though nothing of the fundamentals changed a bit?

    On a normalized P/E basis, the S&P was already steeply overvalued in 98 (with a P/E of over 30). It was going to crash, it was just a question of when. The market peaked in March of 2000. That was 9 months before Bush was elected. The recession was coming.

    Quite frankly, in retrospect Clinton was a better president than W. But Clinton didn’t make the economy grow any more than W made it collapse. It was a fundamental tech shift, the peace dividend from the end of the cold war, cheap money (thank you Alan Greenspan) and global stability.

  46. Matt commented on Jun 18

    To add to my above, REAL GDP declined from April 2000 to July 2000 (pre-Bush), the government surplus peaked in January of 2000 (12months before Bush took office) and declined from there, etc.

    The recession began under Clinton but it was NOT his fault. That’s all I ever wanted to say.

  47. Quiddity commented on Jun 18

    What I’d like to know is this:

    While the electricity increase was adjusted down from 1.7% to 0.1%, was the energy component in OER similarly adjusted down (to insignificance) or was it allowed to remain “big”, thus producing a decline in OER?

  48. howard commented on Jun 19

    Matt, you ought to learn what a recession is: two consecutive quarters of what is so wonderfully called “negative growth.”

    that is, not one.

    i personally do not blame bush for the recession; recessions are part of the ecology of capitalism. i blame bush for his handling of the recession and his abysmal fiscal record.

    but i digress.

    i’m going to take a minority position here: i think the bls is correct to look at rent and not home ownership. Rent really is the cost of living component; home ownership really does include an asset value.

    now, i’d need to know more about how many apartments include utilities in their price (never true in my days as a renter) and whether the bls assumes that all apartments do before i could comment on the viability of the adjustment our host references here, but that’s a slightly more detailed matter.

  49. VJ commented on Jun 19

    Matt posted:

    What specific policies did W create that caused a recession?

    You need to actually READ my previous post. Did I use the word “policiesANYWHERE in that post ?

    How would a Gore presidency have been different?

    That’s an essay question, but I’m confident he would NOT have signed four large failed tax cuts for the Rich & Corporate, which would have prevented the largest federal budget deficits in history, and we would likely still be running surpluses and continuing to pay down the Reagan/Poppy Bush federal debt as was accomplished during the previous terms.

    Since most of the policies people hate on W for were implemented post-9/11 (Patriot Act, tax cuts, War in Iraq, etc.)…

    Actually, the disastrous tax cuts for the wealthy began prior to 9/11 and turned what would have been another surplus into a deficit by the end of the fiscal year.

    …are you suggesting that the mere presence of W in the WH caused a recession…

    Did I post that it was “the mere presence of W in the WH caused a recession” ???

    …even though nothing of the fundamentals changed a bit?

    A lot of people considered the illegal installation of somebody who garnered the least votes, both popular and electoral, to be a fundamental change.

    Not to mention that there is no previous record of a 20% back-to-back monthly drop in Consumer Confidence in post WWII history, which was then followed by three additional monthly drops in Consumer Confidence. If that’s not a radical fundamental change, I don’t know what is.

    On a normalized P/E basis, the S&P was already steeply overvalued in 98 (with a P/E of over 30). It was going to crash, it was just a question of when.

    Sez you. What gibberish.

    The market peaked in March of 2000. That was 9 months before Bush was elected. The recession was coming.

    Nothing goes straight up.

    The DJIA started 2000 at 11,357 and ended 2000 at 10,786. A five percent drop is hardly an indicator of a recession.

    The NASDAQ ended 2000 about where it was 16 months earlier in August of 1999, whereas that index plummeted from 2470 at the start of 2001 down to 1114 in October of 2002.

    Clinton didn’t make the economy grow any more than W made it collapse.

    Of course he did. I’ve NEVER seen a better example of contrasting the consequences of who it is that occupies the White House.

    It was a fundamental tech shift

    Which didn’t happen until much later.

    the peace dividend from the end of the cold war

    * This administration inherited a level of military spending that was more than 22 times as large as the combined spending of the seven countries traditionally identified by the Pentagon as our most likely adversaries: Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria.

    * This administration inherited a level of military spending that was more than that of the next 12 biggest-spending nations on the planet, COMBINED.

    cheap money (thank you Alan Greenspan)

    Actually, Greenie was RAISING interest rates, claiming that unemployment was getting TOO LOW and the national economy was OVERHEATING. Hardly the seeds for a recession, eh ?

    and global stability.

    Thank you President Clinton.

    To add to my above, REAL GDP declined from April 2000 to July 2000 (pre-Bush)

    GDP increased by 6.4% from April 2000 to July 2000 (2nd QTR). I assume you were attempting to reference the 3rd QTR, but that number was positive until this administration rolled back ALL historic GDP data all the way back to when it first began being recorded, in a desperate effort to make it’s own failures look better. Nevertheless, the 4th QTR ended positive as well, so your attempt at a point is still moot.

    the government surplus peaked in January of 2000 (12months before Bush took office) and declined from there


    There would still have been a federal budget surplus at the end of 2001, if it weren’t for the failed tax cuts for the Rich & Corporate enacted earlier in the year.

    The recession began under Clinton…


  50. wunsacon commented on Jun 19

    No one needs to buy a home to have a decent roof over their heads. If the cost of home ownership is that much higher than OER, why should we bake consumers’ irrational behavior into CPI?

    Many other distortions are maddening. But, not this one.

  51. cm commented on Jun 19

    Small sample from some stores where I shop, over some 3 months or so:

    Gallon milk: 2.89-3.49 (+20%)
    Half gallon milk: 1.89-2.39 (+26%)
    2 lb cottage cheese: 2.49-3.29 (+32%)

    One may see a dairy theme here, but I can also offer a particular local brand of bread that went 3.49-4.79 (+37%) between end of last year and now. There are many other categories, but I can quote only so much from memory. Not everything is 20%+ over 3 months though.

  52. Fred commented on Jun 19

    “ERA OF LIEs” VJ….address that. The economy was a MIRAGE….huge greedy mess built upon an aire of “get what you can, while you can…and don’t get caught.”

    I agree with Matt on many of his points…including that Clinton was a better President than Bush (shocker?)…but the economy was a house of cards, and you know it!

    Address that!

  53. Fred commented on Jun 19

    “Quite frankly, in retrospect Clinton was a better president than W. But Clinton didn’t make the economy grow any more than W made it collapse. It was a fundamental tech shift, the peace dividend from the end of the cold war, cheap money (thank you Alan Greenspan) and global stability.”

    I agree with this pragmatic post. We need more centrists…with eyes “of the world”

  54. Matt commented on Jun 19


    IF you want to disagree with me, at least know your facts.

    According to the St. Louis Fed:

    2000-04-01 9847.892
    2000-07-01 9836.603

    That’s a decline.

    Again, according to the St. Louis Fed:

    Government surplus, quarterly:
    1999-04-01 149.9
    1999-07-01 159.8
    1999-10-01 178.0
    2000-01-01 268.7
    2000-04-01 240.9
    2000-07-01 240.2
    2000-10-01 207.9
    2001-01-01 189.2
    2001-04-01 149.4
    2001-07-01 -97.2
    2001-10-01 -35.3

    How can you argue that it peaked in the first quarter? It was already declining before Bush took office!

    And I know you like to bring up the CCI numbers but that’s basically a suggestion that the economy went into recession based on who moved into the WH without any policy change!

    And if you think my argument on the S&P is gibberish, argue with them then:

    Depending on which earnings you use, the P/E in December 1998 was either 27.77, 32.6,39.73 or 40.15. Given that the historical average on the S&P is around 15, this seems overvalued. On a PEG basis, the components of the S&P would need to be growing earnings at over 30%/yr to justify those valuations. Are you really arguing that these kinds of P/E’s were justified when almost everyone here thinks the market is currently overvalued at a P/E of 18?

    Greenspan helped fuel the boom with lower interest rates. He also helped stop it by raising interest rates. He had far more power over the economy than Bush or CLinton ever did.

    Again, I don’t credit or blame Presidents for the economy under them. By and large, they have nothing to do with it.

  55. Iskur commented on Jun 19

    According to the BLS.

    Lodging which would of course have all utilities included makes up 8.1% of the shelter index. Now since this is lodging, no long term set rate, prices will rise along with utilities so this part of the index is unelected by the scenario given here.

    Rental residence makes up 18.1% of shelter costs. Of that how many do you think are all utilities paid? 5% max would be my guess. In all the times I’ve looked for apartments I have only seen a couple. And I’ve looked at hundreds.

    So here we are getting our panties in a bunch about a specific scenario that makes up less than 1% of one component of the CPI.


    Relative Importance
    Shelter 32.776
    Rent of primary residence 5.930
    Lodging away from home 2.648
    Housing at school, excluding board (2) .154
    Other lodging away from home including hotels and motels (3) 2.493
    Owners’ equivalent rent of primary residence 23.830
    Tenants’ and household insurance .369


    BR: I am referring to primary residence — 40% of core CPI

    I do not understand where or how you derived your data

  56. VJ commented on Jun 19

    Fred posted:

    ‘ERA OF LIEs’ VJ….address that.

    Provide a modicum of evidence to back up your ridiculous assertion and I’ll be glad to address it.

  57. VJ commented on Jun 19


    The GDP data is straightforward. From the Bureau of Economic Analysis:

    2000: 2nd QTR – +6.4%

    2000: 4th QTR – +2.1%

    The federal budget surplus data is straightforward. From the Congressional Budget Office:

    2000: $86.4 Billion ‘On Budget’ SURPLUS

    2001: $32.4 Billion ‘On Budget’ DEFICIT

    Subtract the tax cuts for the Rich & Corporate that cost $75 Billion, and there STILL would have been a sizable surplus in 2001.

    How can you argue that it peaked in the first quarter? It was already declining before Bush took office!

    As the data I just documented indicates, you are WRONG. You are arguing with the ‘Bureau of Economic Analysis’ and the ‘Congressional Budget Office’.

    You’re starting to make yourself look foolish son.

  58. fred c. dobbs commented on Jun 19

    Barry: How come you attract so many nut cases to your blog? Does it worry you?

  59. Fred commented on Jun 19

    He’s starting to make himself look foolish?????

    VJ posts:

    “Fred posted:

    “‘ERA OF LIEs’ VJ….address that.”

    Provide a modicum of evidence to back up your ridiculous assertion and I’ll be glad to address it.”

    ARE YOU KIDDING ME? Ever hear of Worldcon, Enron, Adelphia, Marth Stewart and hundreds of other corporate malfeasance examples? Greed, deception, and hubris were accepted as fine, as long as you didn’t get caught. The commander in chief set the tone.

    The ERA OF LIES.

    You addressed nothing…(shocker).

  60. Matt commented on Jun 19


    The St. Louis Fed gives these numbers for the quarterly govt surplus/deficit:

    1997-07-01 9.5
    1997-10-01 16.1
    1998-01-01 61.6
    1998-04-01 75.7
    1998-07-01 110.1
    1998-10-01 116.0
    1999-01-01 128.4
    1999-04-01 149.9
    1999-07-01 159.8
    1999-10-01 178.0
    2000-01-01 268.7
    2000-04-01 240.9
    2000-07-01 240.2
    2000-10-01 207.9

    That data peaks in January of 2000 and begins declining 12 months BEFORE Bush took office. I’m not arguing with the CBO, the St. Louis Fed is.

    And as to the GDP, even if you disagree with the numbers I posted (again from the St. Louis Fed), you have to notice that the rate of growth was slowing drastically before Bush took office.

    You also cannot argue that the P/E on the S&P was extremely high in the late 90’s. That market was coming down one way or the other. It was a speculative bubble at the end with companies that weren’t making money commanding huge market caps. This WASN’T Clinton’s fault. All I made was a statement suggesting that the recession began in 2000 which I believe is supported by data.

    Noone has answered my original and perhaps more important question: why don’t we (meaning people interested in this subject) construct our own measure of inflation? The data is out there, its just a question of weighting it.

  61. Eclectic commented on Jun 19

    …Our death row inmate got his new tube of toothpaste, and now Bondie’s fallen in love with him, and married him. You know!… it’s those prison romances we all hear about, sort of an example of “Beauty and the Beast.”

    The warden has permitted them to have a conjugal visit already. It’ll be higher rated on YouTube than “Sicko!”

  62. VJ commented on Jun 19


    You keep posting the same gibberish.

    I made was a statement suggesting that the recession began in 2000 which I believe is supported by data.

    The NBER (National Bureau of Economic Research) is the private-sector arbiter of when recessions begin (I have some dispute with them about when they end, but…), and they reported the recession began in March of 2001, your beliefs aside.

    Try doing some homework instead of just drinkin’ the Purple Kool-aid.

  63. Sweeny Texas commented on Jun 19

    As most have pointed out, the inflation we are now experiencing is mainly in the necessities of life – food, shelter and energy. This leads to less spending on toys and entertainment which leads to recessions which leads to lower short-term interest rates. I don’t know how anyone could believe that the Fed’s next move is up.

  64. Greg0658 commented on Jun 19

    The Fed needs to raise rates to halt multi-national corporations to continue going further global with factories/jobs. Good guarenteed CD rates keeps irrational exuberance in check.

    You missed Tyco and Heathcare South in the Enron, Worldcom, Adelphia list. And my memory has those items starting to brew in the tail end of the Clinton years and just hitting the presses at your recession point in time. The California energy problems started pointing at Enron.

    Why wouldn’t that kind of stuff start a recession? Why wouldn’t that kind of stuff push CEO’s & Boards to other markets. Instead Wall Street prefers blaming Sarbanes-Oxley Act of 2002 and the democrats.

  65. Eclectic commented on Jun 20

    Here’s a shout-out to all you motor truckers on the Bank of England rate committee, and all you NZ guys and you Euro Zone central guys as well.

    You wanna raise rates?… You wanna make my day!

    Well, you motor truckers can just go ahead and do it. Go’on… do it!… Don’t talk, just do… pull those triggers!… Go ahead!

    And then, stand back and watch WTF you’ll reap.

    Go’on… jiss do it!… G’ahead!… If you got the balls… do it!… Show us what you’re made of… G’ahead!

    Be a man!

  66. The Big Picture commented on Jun 21

    Agflation !

    Over the years, we’ve looked at — and coined one or two — terms for the current inflationary environment. We have reviewed such phrases as:Stagflation: The classic 1970s term for high inflation ( 6%), very anemic growth (0-2%) Blahflation: Street Ins…

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