Hypocrites, Inflation, Housing

Saturday, May 20, 2006 | 05:32 AM

Keep your eye on the hypocrites as they begin to selectively cherry pick WMD intel inflation data.

They are out in full force. These frauds have been begging -- BEGGING -- the Fed to stop raising rates. Their rationale? The CPI is overstating inflation,  thanks to the owners equivalent rent.

The recent market damage came from the crowd's belated realization that these empty no-inflation arguments were as hollow as the heads of those who had been making them. 

If it wasn't so sad, it would be funny.

Let's review how this happened: Over the past few years, as inflation built up a full head of steam, we have warned -- repeatedly -- that CPI grossly understated inflation due to the Owner's Equivalent Rent. OER  added a mere 2% to the inflation basket, and at a third of the core rate of CPI, it articifically made inflation appear low. If we used more accurate reality based data, say the OFHEO's measure of actual home owning costs, then that housing portion of inflation would have been up as  high as 14% year over year.

We referenced charts, pointed you to other sites, highlighted economists who got it, flogged the issue relentlessly. We even helped convince in our small way the NYT to run an article on this. That was ignored by a bevy of hacks, charlatans and soothesayers, all cooing that inflation was non-existent. (Excepting, of course, for everything going up in price).

Now, a selective group of shills and montebanks are coming out of the woodwork to proclaim -- once again -- that there is no inflation, due to OER.

Sorry, you have not earned that privilege.

If you did not discuss the impact of OER on CPI as housing ignited and ran higher, then you are hereby barred from using it on the opposite side of that mountain. Failure to comply with this edict will result in endless public ridicule and humiliation. (I will personally see to it).

~ ~ ~

On the opposite side of the honesty fence, here are my two favorite commentors on the subject of inflation and/or OER. These are people who have been in front of much of the crowd on these subjects, and deserve to be singled out as credible and intelligent.

Joanie, the Penobscot Princess, observes:

"Look. Here’s how this works with the OER. The elite won’t be hip to this, but they can follow along vicariously. What do the overwhelming majority want to know when shopping for a house, eh? Bingo. Monthly nut. Period. They don’t care what the sale price is, the rate, the terms, nothin’. Just tell me the amount I need to pay come the 1st and lemme’ outta’ here. Sad, but unfortunately, true.

So when money is so loosey-goosey that on a monthly basis (a/k/a paycheck to paycheck) it’s cheaper to own than rent (despite the soaring price of the asset), OER dies on the vine and drags CPI. Conversely, when money gets more expensive/tighter (despite any softening of the price of the asset) more folks turn to renting as this becomes their sole option; buying a home is now out of monthly reach.
When this happens as the numbers are implying at the moment, OER can accelerate, boosting CPI. In this oversimplified way, the cost and availability of money is dictating the slack or the tightness in the rental market. Dig? The BLS is only attempting to measure the cost of keeping a roof over your head on a monthly (rental) basis.
They are not in the business of assessing whether the underlying asset, the house, is appreciating or depreciating."

And my favorite pure Inflation comments of the past few days conmes from Jeff Matthews says: "D’oh! Inflation!"

"Given the bond market’s shocked—shocked!—reaction to yesterday “core” inflation news, you’d think nobody on Wall Street does any of the following:

1. Buys gasoline, food or clothing.
2. Rents cars.
3. Buys airline tickets.
4. Stays in hotels.
5. Eats out.
6. Eats in.
7. Pays college tuition.
8. Goes to a doctor, a dentist, or a lawyer.
9. Has life insurance, health insurance, or property and casualty insurance.
10. Pays property taxes.
11. Goes to a psychiatrist.

I continue to be astounded by the intellectual dishonesty in this portion of economics . . .

Saturday, May 20, 2006 | 05:32 AM | Permalink | Comments (37) | TrackBack (0)
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Yes, it's being trotted out already. I heard one of the bulls on CNBC use the argument yesterday. I had the same reaction as you. "That knife cuts both ways Boys". To her credit, the interviewer was prepared and asked about the counter argument. He dissembled. I wish I could recal what idiot it was. And no the interviewer was certainly not Maria Bartiromo.

Posted by: Mark | May 20, 2006 6:23:22 AM

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