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Originally posted by Metal BrainSure, but if over 10 years you're losing an average of 3-4% annually to inflation while your portfolio realizes a nominal average gain of 6-8% annually, then you're still protecting your wealth from inflation.
It is not about making money, it is about protecting your wealth from inflation.
Ahh, a well diversified portfolio. Well diversified with what?
Really if all you want to do is beat inflation and that's it, then just buy a bunch of I bonds.
http://www.savingsbonds.gov/indiv/products/prod_ibonds_glance.htm
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Originally posted by Metal BrainHere's an interesting essay about the cpi off a website called Capital Flow Analysis :- http://www.capital-flow-analysis.com/index.html
Are you talking about this website?
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
Not being an expert he makes points that seem intuitively correct, but it would be interesting to hear some responses.
The actual essay :- http://www.capital-flow-analysis.com/investment-essays/fiddling_cpi.html (John Oswin Schroy) * he seems to run the website also.
some quotes:- "On December 4, 1996, a committee to study the Consumer Price Index under the leadership of Michael Boskin, Former Chief of the U.S. Council of Economic Advisers, presented its final report to the United States Senate.
This study declared that in 1996, the Consumer Price Index had been overstated and that the index should have been 1.8%, instead of the reported figure of 2.9%.
The Boskin Report also concluded that the CPI had been overstated by a similar amount in each of the last twenty years. "
"The economists seem to have been willing to fiddle the CPI to harm the citizenry and achieve political goals.
Lowering the CPI reduces the correction for inflation on social security payments and veterans’ benefits and pensions. "
Terms like 'substitution effect' , 'outlet substitution bias', and 'quality bias' are all critical benchmarks that if badly construed can give a skewed version of the real increases in the cost of living and thus understate how large sectors of society have been slowly sinking into poverty. No doubt these assertions are easily refuted.
Originally posted by telerionThose bonds will only give you about 4% and the inflation rate is probably higher than that right now. The inflation rate will only get worse.
Sure, but if over 10 years you're losing an average of 3-4% annually to inflation while your portfolio realizes a nominal average gain of 6-8% annually, then you're still protecting your wealth from inflation.
Really if all you want to do is beat inflation and that's it, then just buy a bunch of I bonds.
http://www.savingsbonds.gov/indiv/products/prod_ibonds_glance.htm
Originally posted by Metal BrainNo, I bonds pay you a combination of a fixed (low) interest rate plus the inflation rate. So when they pay out, they take the calculated CPI index measure of inflation and back out how much to compensate for inflation. The whole point of the bond is to give you a small return while protecting you from inflation risk.
Those bonds will only give you about 4% and the inflation rate is probably higher than that right now. The inflation rate will only get worse.
I'm not saying that people should throw everything into I bonds, but if you want a sure hedge against inflation risk, you can't do any better.
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Originally posted by Metal BrainNo, look at the last two columns on the table. Those are percentage changes in the index. Those other
Same one I was talking about.
You need to take a second look. Look at the 2008 column. That is not percentage. The rate is too high to be percentage.
The other numbers (besides the year column) show the monthly level of the consumer price index. The CPI is not in percentages. Instead it is set so that 1982-84 has an average CPI of 100. The other numbers (e.g. 211.143 in January of 2009) are relative to the 100 measure. So basically prices now are a little over twice what they were in 1982-1984.
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Originally posted by kmax87If CPI has been overstated, then "effective" inflation has been lower than "reported" inflation. This means that pension increases were effectively higher than if inflation had been reported correctly. So, if the Boskin report is accurate, pension increases have been skewed upwards. When were this measures implemented (if they were)?
Here's an interesting essay about the cpi off a website called Capital Flow Analysis :- http://www.capital-flow-analysis.com/index.html
Not being an expert he makes points that seem intuitively correct, but it would be interesting to hear some responses.
The actual essay :- http://www.capital-flow-analysis.com/investment-essays/fiddling_cpi.html (John have been slowly sinking into poverty. No doubt these assertions are easily refuted.
I think it's unquestionable that the issues of the effects that he mentions are all present. Sure, one may wonder about their relative importance, but to question taking into such considerations altogether seems absurd.
Personally, I find that artificially biasing upwards CPI computations as a way to fight inequality is going about it in the wrong way. I wouldn't be averse to adding a certain premium to computed CPI (so that real growth in society are also spread to certain categories), but knowingly distorting CPI to achieve these goals is only self-delusion (in my opinion).
Edit - Personally, I think Griliches was one of the most knowledgeable economists when it comes to measurement issues. The fact that he was in the commission makes me doubt the conspiracy motive even more.
Originally posted by PalynkaYou just don't get it do you?
LOL, do you know what a column is?
Why the heck should I painstakingly subtract every number from the previous year to get the 1 year percentage? All I asked you for was a link that already broke the numbers down for me. That way I could compare the inflation rate from year to year without doing the unnecessary math.
Get a clue!
Originally posted by telerionWhat if the inflation rate is higher than our government tells us?
No, I bonds pay you a combination of a fixed (low) interest rate plus the inflation rate. So when they pay out, they take the calculated CPI index measure of inflation and back out how much to compensate for inflation. The whole point of the bond is to give you a small return while protecting you from inflation risk.
I'm not saying that people should t ...[text shortened]... ng into I bonds, but if you want a sure hedge against inflation risk, you can't do any better.