Tuesday, Oct 10, 2006

US CPI seems disconnected with reality

Financial Sense Online: The Core Rate

It's becoming quite fashionable to snigger at inflation figures as being out of line with the punter on the street. It seems that disconnection with reality is questioned in the United States too.

Posted by denzil @ 04:29 PM (466 views)
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8 Comments

1. Retiredbanker said...

Now here are a few wheezes for our Gordon to copy.

Indiablue- In a recent post you commented on "the ridiculous Council tax" in the UK, and I agree that
this observation has some merit. However I have noticed a lot of complaining in US blogs about the high
levels of property taxes in the States (particularly in California where it also seems that other assets
such as cars can be liable to an annual tax), and additionally there are sales taxes and local income
taxes to be paid, although these vary considerably from state to state.
Incomes for ordinary working Americans do seem to be very low, even allowing for the lower costs of
living and consumer goods.
Your claim that ordinary people in the US can work their way up the income ladder (unlike in the UK),
does not seem to be the case from the many American blogs that I read.
In fact I would say it is easier to climb the laddder in the UK ; i.e. Edward Heath, John Major, Margaret
Thatcher, all became Prime Ministers from relatively humble backgrounds, which does not seem to be
the case for Presidents of the USA.

Tuesday, October 10, 2006 07:12PM Report Comment
 

2. Ticktock said...

It will be interesting to see what level IRs have to reach before inflationary 'expectations' are considered to be 'contained'.

By this I mean, now everybody is starting to understand the game, understand that economic growth is nothing more than a massive expansion in the creation of debt and paper money, just how high must global rates rise before people believe that Central Banks are really fighting inflation? Will they ever believe that they are again? What might happen if they don't?

If the only way that we can 'grow' is by printing money, lieing about the inevitable resulting inflation, hiding it with FOREX and Gold manipulation, and hoping that the great unwashed never work it out, then what might be the 'plan B' for a time when they do? Invade Iran?

Discuss.

PS. here,here RB.

Tuesday, October 10, 2006 09:29PM Report Comment
 

3. harold said...

"Will they ever believe that [central banks] are again? What might happen if they don't?" -- TT

"Paper money eventually returns to its intrinsic value: zero." -- Voltaire

Tuesday, October 10, 2006 10:56PM Report Comment
 

4. indiablue19 said...

Retired Banker....

With appreciation for the questions you pose.....Having lived a substantial period in both places as a dual citizen, I can only point out that California is, and always has been, a complete anomaly. Notice that a lot of it is expensive coastal real estate that you may easily equate with the Cote d'Azur. The taxes are incredible, so are the salaries. It is also a significant economy all on its own taking into consideration the vast Silicon Valley, an enormous number of research institutions and Universities, huge numbers of wine growers; the agricultural industry in general, and mammoth amounts of tourism, both internal and foreign. Last I'd heard I believe California alone generated a quarter of the GNP of the entire United States. That accounts for a huge number of huge salaries and expensive real estate throughout.

I lived and worked in a variety of locales across the USA and never paid a fraction of the property tax we pay here. For a relatively modest (though highly overpriced) flat I now pay eight times the property we paid for a luxury home in the US. The other variable is that renters don't pay the property tax in the States, it is the responsibility of the property owner, which is a significant budget adjustment when letting a home here at premium cost. What we pay here could fund a substantial apartment in Manhattan. I find that US income, in relation to expenses here [which are readily twice the US], seemed to leave a great deal more disposable income after bills. A good test of this: relatives who visit from various US venues never stop exclaiming on the double expense of the UK price tags; while relatives here in the UK couldn't believe we wanted to move back considering the drop in quality of life and affordability we would experience leaving the US.

US sales tax is NOTHING compared with VAT. The highest sales tax I know of is 7% in Massachusetts, while many States have a fraction of this or none at all. Massachusetts also has the best school system in the US, from primary academies straight on through Harvard, BU and Wellesley. Their tax reflects that advantage.

Most of all, I fail to see what is gained through all this taxation in the UK. Where are the roads, school buildings, railroad system and social services? Every day I drive an obstacle course of pot holes, the railroad is an expensive and generally flawed system, the NHS in continual trouble. I was told that the petrol tax [making petrol more than twice the price of the States] funds the NHS, but our family wouldn't dare go without private health cover as well. This is the one thing I can say is less here, health cover costs me about two thirds of what it did in the States, however, I'm already supposed to have it through the NHS and don't. Dentists here cost a fortune -- if you can find one.

As for the Presidents versus the Prime Ministers. I'm not sure I entirely take your point in assuming that their beginnings and ultimate position represent the norm. However, there are success stories from poverty to position on both sides of the Pond. John Kennedy's father was a bootlegger. Harry Truman was nobody special. Everybody marveled when Nixon and his telephone operator wife took over the White House. Who was Ronald Reagan but a Saturday afternoon cowboy? Probably why he and Thatcher got on so famously.

The thing that is significant to me is who these people ally themselves with when they take office. Prescott, it would seem has turned his back squarely on the common man. Among Tony Blair, Gordon Brown, Menzies Campbell, David Cameron, where is the common touch?

I think all developed countries seem to have lost it as they lionize the wealthy and jetison the rest of us and, as I've said on this site any number of times, I'm well aware that Bush's Dad and cronies put him in office with a lot of tricks and shenanigans and a final vote in 2000 of a Supreme Court almost entirely appointed by the elder Bush. It is one of the biggest disappointments I've ever faced, even as a half-American.

I am not a nationalist to my way of thinking, nor am I investing so much emotion in the US vs.UK debate as seems to go on here. Frankly, I don't even understand the reasons for the debate, but notice it in many forums. The world is past nationality, let alone jingoism, and on to global thinking and living and I'm not in the mood to become a living anachronism. But I do know a thing or two in comparing two places having spent a lot of years in both. Many who post here have opinions on the US apparently based on very little information - perhaps several weeks of self catering in Florida or a business trip to Chicago. I've lived in places across the States over several decades and was substantially educated there. My children are educated here in the UK. We all hear these lively debates on US vs UK and see the large blemishes on false comparisons being made. There are benefits to each place and detriments to each place. We know both sides.

I think Americans are amazed to know how much they are thought about and criticised here in the UK. They are astonished that the UK has any comparisons to make with them at all; Great Britain is such a small place and so entirely different in history, geography, and focus of modern industry. It does seem to me generally a ridiculous comparison all round and would never occur to the average American as an important discussion. I never thought of the two places as anything similar and, in fact, liked the fact that they weren't for most of my life spending trips here on amazing idylls in the Oxfordshire countryside, through the Yorkshire Dales, up and down the Ceredigion Coast, on Iona and into the Scottish Highlands to "bag" Munros. I believe it may be Margaret Thatcher and her thoughts on privatization and odious imitation of Reagan's Alzheimer's problems that stole Great Britain's identity and gave people the notion that comparison with the United States was something important. I don't see why it is, but this is a "day in and day out" discussion here. It absolutely NEVER comes up in conversation in America.

And, suffice it to say, I have no intention of moving back to the States. Warts and all, I find the UK far more of a challenge and therefore more interesting, if not terribly convenient. The affordability issue is another problem, one that must be faced daily with respect. This place is AWFULLY expense for the quality of living offered. What makes it worthwhile is that it is on the threshold of Europe and entertains the thought processes of the other half of the world in its thinking. The US is cut off from this, either by geography, by sheer lack of contact for most people who can't afford to come look at Europe, by lack of education and access to resources, or by the intention of the American media who beat a very self-serving drum to keep people intent on other stories that will yield the results the government is seeking. I am fortunate to have the opportunity to know that both exist -- the States and Europe. And once you realize that, you never again look away from the world story, but determine to keep on learning. As I have told my children, we are world citizens now, there is no going back. And at the same time, I realize that some national comparisons represent little more than trying to cram a round peg into a square hole.

Tuesday, October 10, 2006 11:49PM Report Comment
 

5. indiablue19 said...

Denzil...
On your very interesting and well done article I have some factual rather than philosophic comments. There are many squeaks of discomfort from the US that I have heard, especially on food prices which are one and all headed upward. And when I talk with these people, I have to laugh. Examples? Chicken at 69 dollar cents a pound now going to 75 cents, a GALLON of milk for $3.69 going to $3.80, eggs for 89 dollar cents a dozen now up to a dollar. Specialty breads for $2.69 a loaf that were $2.39. Calculate sterling prices by dividing each of these figures by 1.85, at today's rate of exchange -- down from 1.91 quite recently. And Petrol is still less than half of what we pay even with the much-touted rises Stateside. American people may be reacting, and "good on 'em" but they haven't seen anything yet in relation to the UK.

And about comparatively low salaries or stagnating salaries in the US....I still say in relation to costs they aren't bad at all because I talk to people there a few times a month, in Boston, in Kansas City, in Kentucky and Arizona and their money goes a lot further than mine. As an executive in the States I made ten years ago what they advertise as the average executive salary in the UK now. Most middle-class Americans would be unhappily amazed at life in the UK as they saw their accustomed conveniences erode. Whereas, many Brits probably wouldn't complain at the same "threshhold of discomfort" as the US citizens are having, but still would be counting their lucky stars.

Wednesday, October 11, 2006 12:37AM Report Comment
 

6. Ticktock said...

REF - The world is past nationality

Unfortunately, this huge and common error of judgement will likely lead to as many wars in the future as it has in the past.

All Imperialists like to view the world in this way, and for obvious reason.

The fact is that Nationalism will exist for as long as Nations do, and in any time of crisis will 'trump' all other concerns. This always has, and always will be the case (as the neo-'globalists' are descovering now in Iraq for example)

Wednesday, October 11, 2006 02:13PM Report Comment
 

7. indiablue19 said...

TickTock..
However we are conversing on the world wide internet; English is well on the way to being an international language, education is very nearly perceived as a universal right, even in undeveloped countries; women and men are gradually achieving equality [despite scrapping over the fate fo the veil]; economies from one country to the next are now interdependent with banks going international as well [even Royal Bank of Scotland is turning up in the US high street] and it probably won't be all that long [shortly after the next crash I would imagine when everyone realizes that what happens to the US happens to all] that banks become internationally regulated. India and China will use all the fuel in a few years if there aren't some better solutions, which is going to take all of our common effort to find a solution for. I am betting besides that it will be decided that economies should share one currency and economic regulation since it is making life simpler in Europe and has done for a few centuries in the UNITED States, which was conceived as a common entity rather than seperate entities from the beginning for good reason. The needs of the people of the world are more alike than different. I believe it is inevitable, especially in the face of threatened nuclear disasters that the United Nations will become more and more significant as a way to avert all out holocaust. Actually, the British Empire cast a long shadow and was a beginning to some of the relationships that will be heavily relied upon now in expanding world unity.

Thursday, October 12, 2006 02:12PM Report Comment
 

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