Editor’s Note: In Argentina, everyone knows about the rising threat from inflation. Everyone except the Argentine government. For over a year, official data has vastly underestimated the true increase in prices. The Daily Reckoning’s Mogambo Guru says that Argentina isn’t the only country meddling with inflation numbers. The US method for measuring price increases is deeply flawed, he argues, making inflation-indexed Treasury bonds (TIPS) a poor investment.

Using Modern Economics to Scare Children

By Mogambo Guru

There was an interesting article in last Tuesday’s Wall Street Journal titled “Watch Out for Sovereign Debt Risk” by Carmen Reinhart and Kenneth Rogoff, a couple of economics professors at U. of Maryland and Harvard, respectively.

I thought that it would be about all those dollars that foreigners have in their “sovereign wealth funds”, thanks to the damned Federal Reserve creating it all, and then us borrowing it and then spending it on imports of foreign goods and services, enough to produce a merchandise trade balance deficit of almost $850 billion a year!

Or maybe the article would be about how all that money being wielded by sovereign wealth funds is actually not worth the paper it is printing on, and if they think that they can conduct business with worthless collateral and assets, then we should all rise and say, “Welcome to American Fantasy World, as we Americans have constructed an entire economy based on this very same stupid idea, and convinced everyone else to go along with it! And now you are stuck with it! Hahaha!”

Naturally, I was breaking out the nachos and tequila to celebrate the fun we are going to have watching these foreign weenies go berserk when they find out that they have been bamboozled by a fiat currency, and everyone will start to look at the dollar with a look of disgust, like my fellow workers look at me when I come to work in the morning; warily, suspiciously, filled with envy and thinly-disguised hate.

Yes, envy! They are jealous and envious that I am smart enough to be buying gold and silver with every dime I can get my hands on (well, I would if I could get my hands on an extra dime these days!) in response to the preposterous monetary policies of this country and the world, but they are all so stupid that they are NOT buying gold and silver in response to the blatant idiocy that is Modern Monetary Economics, which is so stupidly dangerous that even little children immediately see that it is total crap!

The supreme idiocy of the Federal Reserve, abetted by a corrupt Congress that lets them get away with it, is so obviously and tragically wrong that even little kids react the same way, as they instinctively know how catastrophically, terribly wrong it all is!But this is not about the damned Federal Reserve or the horrid Alan Greenspan, as the Journal article notes, “Already, a good share of Argentina’s debt is in default. What else to do you call it when a government that owes over $30 billion in inflation-indexed debt manipulates its consumer price statistics?” Hahaha! I call it, “Welcome to the real world, chumps!” Hahaha!

The scam boils down to the fact that “the government is publishing an understated inflation rate that is used for calculating indexation payments”, which we Americans know as business-as-usual, thanks to Alan Greenspan and Michael Boskin rigging the Consumer Price Index, which is then used to compute increases in the Cost Of Living Allowances (COLAs) to make sure that Social Security payments, welfare payments and all kinds of payments to all kinds of people (and lots of them!) keep up with the ravages of inflation in prices.

Hell, apparently these two college professors don’t know that, right now, the United States is paying, on its inflation-index bonds (TIPS), less than inflation (as measured the old-fashioned way; changes in prices), meaning that if you hold one of these piece of garbage Treasury Inflation Protected Security bonds, you are paying money to loan money to the government

And don’t get me started on how increases in Social Security payments have lagged increases in prices for years and years, because I hear plenty of that from people who depend on Social Security checks.

I thought that they would note by my disrespectful remarks that this is old news. They admit, “Fudging indexation clauses to effectively default on debt is an old game”, and then they go on to note how India essentially did it in the ’70s, Brazil did it in the ’80s, and the USA did it in the Great Depression by revaluing gold to $35 an ounce from $20 an ounce, “effectively rewriting the contracts of foreign holders of U.S. debt.”

And now we are doing it again, just like everybody else! Hahaha! As Bugs Bunny once slyly put it, “Ain’t we stinkers?” Hahaha!

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Source: Using Modern Economics to Scare Children