Labor Bureau’s numbers racket takes consumers on 1-way ride

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By Jim Perez,
DebtHelp, Inc. Staff Writer

Please don’t shoot the messenger.

I am not a doomsday prophet, merely a chronicler of economic events.

But I do have to say that after writing about economic events these past few months, sometimes I feel like grabbing a gun.

But which messenger I’ll be aiming at, I won’t be saying.

For example, despite Wednesday’s 137-point rise after the Fed cut interest rates a quarter point, the Dow on Thursday took a 360-point drop. I haven’t seen a roller coaster ride like this since I visited Magic Mountain, near Los Angeles, a few years ago.

I’m sure many individual investors wish they could get off this ride.

I know I do.

As for some fund managers, I’m sure many of those same individual investors would like to take those managers for a one-way ride.

Thursday’s drop was attributed to the Fed’s warning that Wall Street’s interest-rate-cut gravy train is running dry because the Fed is concerned about inflation.

If inflation continues to grow, the Fed might, Gasp! raise interest rates. Alan Greenspan would be rolling in his grave at the thought, if he were dead.

Adding to inflation worries, overnight oil prices topped $96 a barrel before crude traders scavenging for profits caused oil to drop. Predictions of $100 a barrel are now even-money bets.

Hammering at Wall Street even more, the Commerce Department said that consumer spending slowed in September, rising by 0.3 percent, slightly lower than the 0.4 percent increase that analysts had been expecting. Incomes matched August’s gain of 0.4 percent, in line with forecasts.

Inflation news from the consumer spending report was good, as usual.

The Fed’s preferred inflation gauge rose a moderate 0.2 percent in September. This measure is up 1.8 percent over the past 12 months, inside the Fed’s comfort zone of core inflation increases between 1 percent and 2 percent. 

The Fed’s preferred inflation gauge excludes food and energy.

Nor is housing a concern for the Fed.

But if you are an average consumer, it is.

And as the housing market continues to slide, foreclosures being up 30 percent at the end of 2007’s third quarter, double the same period in 2006, more and more people are joining us in the ranks of average consumers.

The Economist magazine agrees with some, including me, who say that the Fed’s inflation-sleight-of-hand is stroking Wall Street and slapping Main Street.
The magazine says that an average of “all items” is going up not at 2 percent or 3 percent per year as the U.S. Bureau of Labor Statistics claims, but at 16.7 percent per year.  Food is going up even faster – 31.6 percent.

Treasury Secretary Henry Paulson continues to tell us the dollar is strong.

I don’t know about you, but I’m having trouble living with Paulson’s “strong dollar.” I can only imagine what it would be like if the dollar were weak in Paulson’s eyes.
Strategic Investment’s Dan Amoss says that, "With each new release of economic indicators – the consumer price index, the new employment numbers, trade deficits, gross domestic product and more – every number, bad or not so bad, is contorted into ‘happy speak’ by the talking heads responsible for keeping the good times rolling."

Amoss continues:

"Just imagine how great your family budget would look if you didn’t have to include your mortgage payment, the gas to run your car, your heating bill or the weekly grocery bill. You’d probably feel pretty rich, too. But reasonable people know you just can’t ignore these bills without some pretty serious consequences.

"In addition to excluding the above three, the Fed also plays a cool sleight of hand with the prices it does include. For example, we all know that a computer is twice as capable as one from five years ago, but costs about the same price. But the Fed goes ahead and adjusts the price downward to contribute a 50 percent decline in price in the CPI.

"So if you were to take out the adjustment tricks, inflation would probably run 3 or 4 percentage points higher than what the government will admit. Just think how fast an 8 percent inflation rate can eat into savings and investments."

Of course, if banks were paying a reasonable return on our savings, because bond traders and investors demand a 2 percent return after inflation, this would mean that bond and money-market yields could climb into the double digits.

Imagine getting a double-digit return on a bond or money-market fund.

As I said a few weeks ago, that’s unthinkable:

Having to pay a high return to common folk investors such as us would cause the salaries and bonuses of bank and fund managers to drop below the $10 million mark.

Post written by DebtHelp.com

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