WRITTEN BY CHRISS W. STREET
Economists refer to the sum of the consumer price index (CPI) measure of inflation and unemployment rate as the “Misery Index.” This measure of national pain peaked at 21% in the last year of the disastrous Carter Administration, and then trended lower under the next four Presidents. But $5.3 trillion of deficit spending by the Obama Administration, coupled with $3 trillion in expanded bank lending and $1.3 Quantitative Easing as economic stimulus, rising commodity inflation broke the long-term downtrend of the Misery Index during President Obama’s first term. But because housing was actually down over the last 4 years, the CPI measure of inflation has been substantially understated. With housing now leading energy, food and healthcare inflation, consumer purchasing power is shrinking and employers will lay-off workers as sales drop. The Misery Index during President Obama’s first term rose to only 10%, but with deficit-spending continuing and a recession looming, the Misery Index is about to soar.
The last time America engaged in this type of government “stimulus” followed PresidentLyndon Baines Johnson’s 1964 declaration of the War on Poverty. What began with the passage of the Medicare expansion of Social Security and the Elementary and Secondary Education Act, morphed over the next 16 years through the Johnson, Nixon, Ford and Carter Administrations into a smorgasbord of bloated social spending powerful political and corporate crony advocates. The resulting build-up of inflationary pressures and job destruction drove the Misery Index from an average of 7% under Johnson to 16% under Carter. The “Industrial Heartland” of mid-west America was transformed into the “Rust Belt”. Disillusioned voters in 1980 swept Ronald Reagan into office with a tough-love mandate that steadily drove inflation over the next 28 years.
President Obama successfully advocated for a huge expansion of deficit spending on education and healthcare as an economic stimulus. The Congressional Budget Office projects that over his 8 years in office, the Administration will have engaged in $7.5 trillion in deficit-spending and the national debt will almost double.
The President’s formula of deficit-spending and money printing stimulus is being copied by governments around the world. The McKinsey Global Instiutute Commodity Price Index for food, raw material, metals and energy prices has risen over the last four years to historic highs, and continue to climb. During the same period the U.S. price of a gallon of gasoline rose by 132% and has continued to rise for the last 33 days in a row. Over the last two years, the accelerating costs of food rose by 8.1%.
Raging inflation has not been reported by the media, because the Consumer Price Index over-weights the cost of housing as 41% of the Index. The Obama Administration’s Misery Index is only up to 10%, because housing costs actually fell by 3%. But cheap money from the Federal Reserve is beginning to fuel a new housing bubble. The year-end CoreLogic Residential Property Report states: “December marked 10 consecutive months of year-over-year home price improvements, and the strongest growth since the height of the last housing boom more than six years ago.” CoreLogic predicts home price will rise by 8.6% this year.
The last Federal Reserve Open Market Committee minutes demonstrate that several members are concerned that if the Fed had to push up interest rate by selling some of its bonds to stop inflation, there might be “significant capital losses” that “distort financial markets.” Few Americans are aware the Fed’s massive bond purchases not only drove interest rates down, but also pushes up the value of the Fed’s bond holdings. The U.S. Treasury made an “$88.9 billion Portfolio Profit” last year from the Fed. If the Fed needs to push up interest rates by selling bonds, the U.S. Treasury will suffer hundreds of billions of dollars of “Portfolio Losses” and the finacial market will panic. With inflation about to force the Fed to raise rates, the Misery Index is about to soar.
CHRISS STREET & PAUL PRESTON
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