With short-term interest rates at 3% and Bailout Ben Bernanke threatening to take them lower in an effort to stave off the effects of the subprime mortgage mess created by a coalition of unscrupulous mortgage writers, indfferent greedy Wall Street mortgage packagers, and moronic investors who bought these packages without doing due diligence on the risks they were taking, the US economy is in trouble. Without question, the result of Bernanke's bailout will benefit Wall Street, but its main effect on Main street will be to increase the prices of virtually everything that we buy, and at a far greater rate than the absurd rates of inflation now being quoted by the Bureau of Labor Statistics
Putting this in a nutshell, the "official" inflation rate for the United States is measured by the "core" rate of inflation. This rate of inflation excludes the changes in the costs of food and oil which are regarded as "too volatile" to give an accurate reading of where inflation is headed. The fact that the basic prices of commodities in the food sector have doubled or in some cases tripled of the past couple of years coupled with the virtual tripling of oil prices is therefore excluded from the "official" increase in the cost of living.
The Bureau of Labor Statistics uses another trick to distort how fast inflation is really rising. If the price of one component in their basket of goods rises sharply, it is assumed that that component will be replaced by a lower-cost alternative. For example, if beef costs shoot up, it is assumed that consumers will eat more chicken. If chicken costs shoot up as well, perhaps they substitute dog food. Use of these "statistical tricks" keeps the government from having to increase Social Security checks and other payments that are indexed to the cost of living at a rate that reflects reality.
The US Treasury has, for some years, issued bonds called TIPS, which stands for Treasury Inflation Protected Bonds. These bonds promise to pay a certain interest rate and to index this rate as well as the principal amount for inflation, admittedly as measured by the biased methods described above. Up until a year or so ago, these bonds yielded between 2% and 2.5% for 5 years, meaning that a buyer of these bonds would receive the stated interest rate, but that the face value of the bond would be adjusted upwards as inflation diminished its value. A buyer of this bond could expect a real return over and above the rate of inflation.
Today, as part of the loss of confidence in the economy of the United States, the 5 year inflation-indexed bond has a yield of -.05 percent.
http://www.bloomberg.com/... That means that if you buy this bond. you pay "protection" money to get back the inflation-adjusted value of what you put in, and even that will not reflect the true rate of inflation.
Folks, contact your elected reprentatives. If you are involved with any payment that involves a COLA (Cost of Living Adjustment) you are being cheated badly. Force the United States Government to own up to the inflation rate that it is responsible for. The truth may hurt, but the fiction that is now pawned off on the media and the citizens disguises the true state of hurt this economy is in.