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The Inflation Targeting Scam And Why It Guarantees The Mother Of Financial Meltdowns

Chart Inflation

The estimable Martin Feldstein put the wood to the Fed in a recent op-ed and in so doing hit the nail directly on the head. He essentially called foul ball on the whole inflation targeting regime and its magic 2.00% goalposts in part due to the measuring stick challenge.

 A fundamental problem with an explicit inflation target is the difficulty of knowing if it has been hit.

That problem is plainly evident in the chart above. You could very easily make the argument that goods prices are beyond the Fed’s reach because they are set in the world markets and by the marginal cost of labor in China and the EM.

Therefore the more domestically driven CPI index for services such as housing, medical care, education, transportation, recreation etc. is the more relevant yard stick. Alas, if there is something magic about 2.00%, why then, mission accomplished!

On a five year basis, services inflation is up at 2.2% annually, and during the past year it has heated up to 3.2%.

Then again, if the Fed were not comprised of power-hungry apparatchiks looking for any excuse to intrude in the financial markets and dominate their hourly behavior, it might well recognize the merit of what we have termed “CPI Using Market Rent” (box).

That’s because the regular CPI gives a 25% weighting to the OER (owners equivalent rent), which is more than a little squirrely. The BLS actually asks a tiny sample of homeowners what they would charge per month if they were to rent out their castle.

They have no clue! So the BLS plugs some survey questionnaire noise into an algorithm and calls it 25% of the entire damn index!

Continue reading article, CLICK the link below…

http://davidstockmanscontracorner.com/the-inflation-targeting-scam-and-why-it-guarantees-the-mother-of-financial-meltdowns/

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