The Truth About Inflation in the United States

This chart is courtesy of economist John Williams of www.shadowstats.com. Here is his explanation of this chart:

"The above graph plots the level of consumer prices during the last 340 years, where Robert Sahr of Oregon State University, using the research of John J. McCusker of Trinity University, San Antonio, Texas, estimated the data for the period 1665 to 1913. The continuing solid line from 1913 to 2005 is the official reporting of CPI-U by the Bureau of Labor Statistics. The dotted line from 1982 to date represents official CPI-U reporting net of methodological changes used during the last two decades to suppress inflation reporting. This "Standard CPI" is as estimated by the BLS in its Consumer Price Index Research Series Using Current Methods (CPI-U-RS) and as applied to the official CPI reporting by Shadow Government Statistics (see the discussion in October 2005 SGS).

The scale of the current inflation problem can overwhelm visually the price volatility of the earlier years. Indeed, the price history up through the founding of the Federal Reserve in 1913 encompasses periods of severe inflation and deflation, with the big price swings tending to offset each other over time. The periods of historical inflation were most intense around wars, including the French-Indian, the American Revolution, the War of 1812, the Civil War and World War I. Then the United States abandoned the gold standard in 1933.

The late-1970s and early-1980s were the timeframe in which the federal government began addressing the inflation problem by monkeying with the reporting methodology. The dotted red line shows what the CPI would have shown through year-end 2005, without the methodological changes. The difference is based on the impact of the methodological shifts as estimated by the BLS."

This chart not only points out how government data on inflation has been manipulated over the past few decades to portray little or no inflation, it also clearly shows the way our government has chosen to deal with our debt problems -- they are going to try to inflate away the debt.

The way this country is racking up debt can only lead to the conclusion that inflation is part of the plan, as it's impossible to pay back this debt. No amount of taxes will ever come close to paying off the liabilities of the U.S. Indeed, we could all give 100% of our incomes to the government and barely make a dent in the liabilities our government has racked up, as this economist John Williams estimates the U.S. government has a current negative net worth of $34.8 trillion dollars.

The only way to make this debt less onerous is to lower the value of the dollars we owe, and that happens through inflation. This is probably the real reason behind the demise of M3 as a data point.

Posted March 13, 2006 09:51 AM
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