Bernanke’s Warning That He Would Hike Rates To Bust A Bubble.

In Wednesday’s letter we noted that virtually everyone involved in the marketplace ignored Ben Bernanke’s warning that he would hike rates to bust a bubble. We also noted that when obscure Fed officials hint or mention anything dovish, the usual suspects trumpet the comments as a sign that the Fed is about to implement QE 3.0 or some other funny money scheme – and stocks soar.

Yesterday, one of the Axis of Doves (Boston, NY, Chitown Feds), Boston Fed President Eric Rosengren followed Ben’s warning about possible Fed tightening with one of his own when he asserted that the Fed would consider removing accommodation if inflation accelerated.

Why did Ben and Rosengren broach the subject of the Fed becoming less accommodative? We believe the reason is the reacceleration of inflation as evinced by PPI and CPI, as well as Americans’ view that inflation is far worse than what CPI suggests. In other words, Ben’s Holy Grail, inflation expectations, is now a Fed concern because Fed officials realize that the public is not and will not buy its deceit that inflation is well contained due to benign ‘Core’ CPI readings.

A recent article stated that the Fed will now take food and energy prices more seriously because average Americans are irate at the real inflation in the necessities of life and don’t buy the Core bs.

John Williams: Annual inflation in the September consumer price index again hit the highest level for the CPI-U series since September 2008. The CPI-U gained 0.3% for the month and 3.9% for the year, while the narrower CPI-W gained 0.4% for the month and 4.4% for the year…The SGS-Alternate-CPI measures reflected annual inflation for September at 7.2% (1990-based) and at 11.5% (1980-based).

In other words, using BLS methodology from 1990, CPI is 7.2%; using 1980 methodology, CPI is 11.5%. Please recall that months ago we opined that the Long Island dress-down of B-Dud for trying to deceive a town hall group that inflation is low because hedonic adjustments on consumer electronic goods lowers the CPI was a seminal event for the Fed.

For years, Fed officials preached that the ‘Core’ and bogus CPI readings mean inflation is well anchored to its Halleluiah chorus on Wall Street. But once the public screamed that the Core emperor has no clothes, the scam was up on Main Street. Much of Wall Street still wants to believe in fairytales.

GDP is a bogus and deeply flawed economic indicator. As we keep ranting, real income and real living standards are the best and foremost economic indicators.

A Long, Steep Drop for Americans’ Standard of Living

The standard of living for Americans has fallen longer and more steeply over the past three years than at any time since the US government began recording it five decades ago.

Bottom line: The average individual now has $1,315 less in disposable income than he or she did three years ago at the onset of the Great Recession – even though the recession ended, technically speaking, in mid-2009…Per capita disposal personal income – a key indicator of the standard of living – peaked in the spring of 2008, at $33,794 (measured as after-tax income). As of the second quarter of 2011, it was $32,479 – almost a 4 percent drop… http://www.cnbc.com/id/44962589

With a more realistic accounting for inflation, living standards and real income would be much worst. We have maintained for years that tax data yields a far worse jobs and income picture than the BLS’s jobs report and other government agencies’ income data because tax data is actual receipts and not guesses, surveying, modeling, hedonic and seasonally adjusted garbage. Americans Grow More Negative About Their Personal Finances Nearly half say their financial situation is “getting worse,” similar to early 2008 Nearly half (48%) say their personal financial situation is “getting worse,” up from 41% in April and nearly tying the record-high 49% who said so in April 2008. www.gallup.com

Source:
The King Report
M. Ramsey King Securities, Inc.
October 20, 2011 – Issue 4121 “Independent View of the News”