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Peak Oil and the Inflation
Lie
U.S.
government, Wall Street hide energy shortage and crisis with deceptive
indicator
by
Larry Chin
In the
past few days, news headlines have trumpeted and repeated what is a non
sequitur, and a physical and logical impossibility:
Overall Inflation Eases, Gas Prices
Up (Associated Press)
Despite Gas Prices, Inflation
Eases (Boston Globe)
These nonsensensical
statements have already become the basis for economic, political and financial
decision-making across the country, as well as internationally.
It
is a lie. Here is why.
Rising
energy costs are inflation. You cannot have one without the other.
Energy, and energy-related material, is the lifeblood of modern industrial life.
When the cost of energy (including oil, natural gas, electricity, and the
products made with petroleum, such as plastic) goes up, the cost of everything
goes up. This is inflation. When energy is depleted, while the use and demand
for energy continues to increase, the price of energy skyrockets. Inflation,
again.
It is
a fact that the world is in the early stages of Peak Oil and Gas---permanent
shortage, and permanent depletion. The world oil peak occurred in November 2005,
according to renowned scientists, geologists and industry experts.
It is
therefore a fact, with permanent shortage with high, rising and insatiable world
energy demand, that rising inflation is not only a problem now, but also a
permanent condition.
Why
are the authorities hiding this?
Core
inflation hides the truth about energy crisis
Simply
defined, inflation is the increase in the average level of prices. However,
there many different methods by which inflation is measured, and selectively
reported by US government (primarily, the Bureau of Labor Statistics), the
Federal Reserve Bank, Wall Street analysts, economists, the corporate media, and
the rest of the US government.
There
are, however, many different definitions of inflation. In recent years, the
Bureau of Labor Statistics and the Fed have selectively emphasized one version,
core inflation. Core inflation is the statistic that excludes
costs of energy and food.
Given
the fact that 1) daily existence in modern life demands various forms of
hydrocarbon energy, 2) a vast array of basic material is derived from
hydrocarbons (such as plastic), and 3) food and food production depend on
hydrocarbons (fertilizers, irrigation and pesticides, energy needed to run
machinery, etc.), the exclusion of food and energy costs in the measure of
inflation is, therefore, a lie.
The
selective use of core inflation is a cover-up that is routinely assisted by
corporate media that, knowingly and unwittingly, promotes the illusion of
a “growing economy with inflation under control, or non-existent”.
Meanwhile,
what is the truth? Consider these:
Inflation looms as oil prices
soar
Oil and gas project costs reach new
highs
Gas costs $1,000 more annually than
in 2001
The
price of every form of energy (oil, gas, electricity) is going through the roof,
as are other costs of everyday survival: health care, housing, and
education.
In The Peak Oil crisis: alarms are
sounding (May 17, 2007), Tom Whipple of the Falls Church News-Press
writes:
“Across
the world, alarm bells are starting to clang. Above every gas station, a large
sign is proclaiming that prices are on an unstoppable climb towards
un-affordability. In Paris, the International Energy Agency has announced that
the demand for oil is likely to exceed the supply later this year, unless, of
course, OPEC steps up production. In the Middle East, OPEC spokesmen reiterate
time after time that all is well, there is plenty of oil, and there is no need
to increase production…. The Chinese just announced that their April oil imports
were 23 percent higher than last April’s. Iraq, Saudi Arabia,
Venezuela---everywhere you look---there are unmistakable warnings of troubles to
come.”
Ordinary
people are being defrauded and lied to. It does not take a degree in economics
or finance to see this. Even people who do not pay attention to the news
intuitively know and feel the increasingly crippling effects of real inflation
every day, at the gas pump and everywhere else. They are watching their money
disappear. The crisis is palpable.
Will
the real inflation please stand up?
If
core inflation is a deceptive statistic, where, then, does one find a more
realistic measure? That is found in what is known to economists as
headline inflation. Headline inflation includes the cost of energy
and food.
A few
contrarian observers have pointed out that headline inflation tells much more of
the truth.
Charles
Bean, chief economist of the Bank of England said in August 2006 that
the U.S. Federal Reserve is wrong to focus on core measures of inflation that
exclude energy prices. According to Bean, “it should focus on headline
inflation, which is much higher. Including energy and food costs, US consumer
price inflation is running at an annual rate of 4.1 percent, against 2.7 percent
for core inflation”. He also pointed out correctly that energy prices were
rising for the same reason the price of many manufactured goods are falling: the
rise of China and other emerging market economies. Bean’s controversial
statement came at the Fed’s annual Jackson Hole, Wyoming symposium. (Since
Bean’s statement, energy prices have risen, which suggests that inflation is
even higher than Bean’s 4.1 percent estimate).
In a
piece titled “Inflation reporting errors
continued”, Barry Ritholtz concludes that the Bureau of Labor
Statistics has been “consistently under-reporting inflation over the past 8
years.” Worse, the amount of the discrepancy has widened dramatically, with “the
gap between core and headline is now greater than it was in the early 1980s,
and---hard as it may be to imagine---we are only slightly off the spread of the
terrible 1970s.” The BLS and the Federal Reserve, according to Ritholtz, have
deviated from reality, even though others around the world see the disconnect…
“The basket of goods and services that is measured is so massaged and
hedonically adjusted”, that it no longer reflects reality.
In
Ritholtz’ view:
“The
U.S. consumer is confronted with rapidly rising costs for food, energy, health
care, housing, education expenses. Indeed, even as both the everyday survival
expenses (shelter, food, energy) and the larger family expenses (doctors,
college, etc.) have exploded, there has been little correlation to what
economists and the BLS have informed them. Despite the contradiction, there is
little inflation in the official stats. It is as if economists are asking
consumers, ‘Who are you gonna believe, us, or your lying eyes?’”
“If we
are to judge inflation on a broader scale, we would undoubtedly come to the
conclusion that, like the rest of the world, the US has an inflation
problem.”
Ritholtz
also notes that the highly respected Bill Gross of PIMCO (the largest manager of
bonds in the United States) sees the same thing. Gross states: “A bigger threat
to asset markets…comes not from slower economic growth in the short-term, but
inflationary pressures towards the end of our secular timeframe. Since 1967,
average differences in headline vs. core inflation have essentially been zero,
despite distinct periods of cyclical variation. Now however, with globalization
so dominant and Chinese/Asian appetites for oil, soybeans and iron ore amongst
other commodities so voracious, it’s hard to envision an extended period of
lower headline US increases.”
Here
is a similar discussion:
Except for inflation, there's no
inflation
In “Lies About Inflation”, Jack Douglas argues
that the official measures of inflation, the Consumer Prices Index (CPI) does
not include housing prices, which have soared in a Housing Bubble of recent
years, and that education, retirement costs, medical and health care costs are
grossly undercounted.
What
are the US government and Wall Street working so hard to hide, and why are they
hiding it? According to Douglas:
“The
CPI does include the soaring costs of energy and food, so the Fed and the Big
Media have cut them out by referring to the ‘Core CPI Inflation,’ which is a
totally ad hoc number they get by cutting out energy and food costs. But have
you ever met an American, or any human being, who could live without food or
energy? The Fed pretends it is cutting out the heart and core of inflation by
cutting out food and energy because these are ‘variable.’ But, of course, all
prices are variable and this variability is the very reason one wants to keep
measuring them: if they were not variable, it would be absurd to measure them
more than one time.
“First,
they do not want consumers to know that the American economy is in a desperate
situation. If people knew the truth, they would save, not spend, and would
insist the government stop running up immense debts to pay-off its rich Party
members and fight unwinnable wars.
“If
people saved, the Fed believes in Keynesian Ideology the economy would shrink,
so they lie to get people to borrow and spend to pump-up the economy. The
government and Fed poured out vast oceans of paper dollars over the past six
years in a desperate Keynesian attempt to revive investment, income, consumption
and growth to kick-start the economy after the Crash of the Nasdaq Bubble
(created by earlier Fed floods of dollars to ‘pump-up the economy’) six years
ago erased over 8 trillion dollars. …“Second,
they hide inflation to keep down the inflation-adjustment wage and retirement
benefits to tens of millions of Americans at the lower end of the income scale,
which saves big corporations and the government tens of billions of dollars a
year.
“The
Fed and the rest of the government failed to kick-start a real investment boom
and growth. They produced an immense burden of debt, inflation, bubbles, and
distortions of the whole global economy. Now all of that is unwinding faster and
faster: we are spinning down faster and faster in a vortex of contraction that
will most likely produce a ‘free fall’---a Great Crash.”
[Note:
I do not endorse all of the political views of this web site. However, Douglas’ view is on
target. -LC]
An
honest, accurate picture of post-Peak Oil economic reality, and the resulting
public outcry, would cause a systemic crash, stock market collapses, and the end
of “consumer confidence”. Without consumer spending and debt, the fragile
economy would lose one of last remaining legs it is teetering on. There would be
no more “pump” in “pump and dump”, and the
Wall Street casino would close.
Off
the cliff, into the dark
Governments,
corporations and policy makers all over the world have been aware of Peak Oil
and Gas for a long time, and have engaged in desperate actions to prepare for
its many effects, including inflation. On February 28, 2007, the US General Accounting Office (GAO) published a
report to Congress entitled Crude Oil: Uncertainty about Future Oil Supply
Makes it Important to Develop a Peak and Decline in Oil Production. The
authorities simply do not want the public to be privy to their
machinations.
The
global architects who manage a teetering global system that profits from
criminality and mass murder---who have lied about 9/11, and lied in order to
wage illegal wars of conquest all over the world---would not hesitate for one
second to lie about inflation. In the words of Mike Ruppert, author of Crossing the Rubicon, there are too many
“psychological and moral limitations that no political leaders and few human
beings can see beyond” to count.
The
lying will not end. Far important is the need to develop the ability identify
the lies, and deal with the reality that they are being told to
ignore.
As Tom Whipple warns, there
are immediate problems:
“…Right
now, on top of every American’s agenda should be the question of whether we are
going to get through the summer without shortages and gas lines---opinions are
mixed.
“Earlier
this week, Matthew Simmons of Twilight in the Desert fame, suggested that
prospects for an uninterrupted summer of driving may be worse than government
spokesmen have been letting on.
“Where
does all this leave us? The short answer is, in an increasingly grim situation.
When respected analysts say our gasoline situation is beyond the tipping point
and that at least some of us are likely to be sitting in gas lines before Labor
Day, we should heed the warning. Looking at the broader, worldwide picture, the
situation is equally grim. When the normally staid International Energy Agency
starts issuing a stream of dire warnings about shortages or much higher prices
before the year is out, we should start thinking about a markedly different
future.”
This
future includes rising, and eventually permanent, inflation.
This
essay is herein reprinted with the author's permission.
Posted March 17,
2008
URL:
www.thecitizenfsr.org
SM 2000-2011
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