“My Two Cents”
By Andy Sutton

12/29/2006

As we prepare to ring in the New Year, I look back at 2006 with amazement. Perhaps, generations from now, they will look back on 2006 as a watershed year; the year that the downward trend that everyone had been whispering about at parties really got going. Last week, I presented conversations that I had with two members of the mainstream financial press and asked you what you thought about the arguments presented by both the press corps and myself. The response was fantastic. I received no less than 106 replies, some saying just a few words. Others took me the better part of a half hour to read. I thank you for your feedback, your insights and most importantly, your time.

Much ado has been made of the presumption that the American people are not more united with regards to financial matters because they are made to feel as if they are alone. The markets are great, the world is great, and YOU are the only one complaining from behind your stack of monthly bills, balance transfer checks and perhaps a few late payment notices. I rest my case to the contrary; that you are not alone, and will go silent and allow your voices be heard in the last column of 2006:

"Just a comment on how CPI is determined. Hedonics aside, I think most people feel it is a function of government employees out shopping a select market basket periodically as noted by one of your responders. However, about 10 months ago I was selected by the Census Bureau to be interviewed 5 times over a period of about 14 months. They did not ask me what I paid for a certain item over time. Instead they asked did I incur any expenses for a set group of household expenses. And a most eclectic grouping of items it was. Clothing, home improvements, electronics, dentures, furniture, sheets, blankets, eyeglasses, firewood, toupees (really). The list was extensive and the actual questioning lasted about 30 minutes. The lady who handled my case insisted the info was quite confidential, and was used to determine the cost of living index. How I can’t imagine as the info I gave her reflected accrued expenses over time on household product categories but nothing that would give you a price shop over time on specific items such as a gallon of milk or a pair of blue jeans.

"I don't care how "new and improved" a thing is, if the price is beyond my reach I have to go to the bank to borrow the money to buy the thing. Now I have to add the cost of money to the price. If the thing is a necessity of life, like food, only an idiot would conclude that inflation is "under control" in any way favorable to myself."

"5 years ago 4 seats(behind home plate) at a Texas Rangers baseball game cost me $64, this year one seat behind home plate is $65. My wife sells diapers on Ebay. Shipping costs are WAY up over last year. Inflation is very real in my little part of the world. I can assure you raises at work don't begin to cover increases in the marketplace."

"Remember the Fed inflation figure drives the increases in Social Security payments - Since there's really no money there in the first place, Running numbers that would require bigger payouts isn't in the Fed's "best " interest."

"What is insult upon injury is that if you or I ran our business the way the government does, we would be tried and convicted of fraud, but somehow when the government does it, it's OK???? It is extremely unfortunate that we have slid down into this abyss. The sudden stop at the bottom will be bone-breaking and for those who survive, the climb out will be grueling."

"How anyone in their right mind can actually believe inflation is 2% is amazing to me. Pay an attorney, mechanic, doctor, accountant, dentist or any other service provider less than a year ago??? I don't think so... food and energy...off the charts........commodities off the charts. Pleeeeeassseeeee...............who do they think we are??? Absolute idiots? I guess so."

"I'd like some organization to comprise an index for inflation called the "living index". It could track changes in disposable income (y/y) with changes in prices in a fixed and pre-selected basket of purchased items (y/y). The basket could include 1 loaf of bread, 1 gallon of gasoline, 1 unit of healthcare, 1 unit of clothing, 1 unit of household rent, etc. The key is that it remains the same over the years. You could even go back 25 years to determine some benchmark. This way, the living index would show us if we are better or worse financially for a fixed unit of work versus a fixed unit of consumption. It would certainly put a spotlight on the effects of inflation."

"We have been keeping our weekly grocery receipt printouts for many years now, and notice a sudden rapid rise in prices just in the last few months, especially the last few weeks. Prices for the exact same items are rising rapidly, so

I think the fellows at The Economist may be right on track. Energy is going up at an alarming rate too. (Have you noticed the almost 100% added Energy Cost Adjustments on your utility bills? - we have approx. 100% energy surcharge.

"It has always fascinated me how human beings, even when staring disaster in the face, and its inevitability is palpably obvious, can pretend away reality. This is the amazing psychology of the mass-sheeple - as opposed to the more insightful individuals - who were granted this narcotic by some mysterious power so that they could be controlled and manipulated, paradoxically because otherwise their own survival would not be possible."

"I read your article in FSU THE SPIN-DOCTORS EXPOSED with interest. I agree with both sides. As a member of "consumer herd", I am at the mercy of the ever-increasing prices. On the other hand, government is government; it will find a way to squeeze as much from us as it was squeezable, so pretending there is no inflation is pretty normal, in line with printing fiat money and pretending there is a justice in the world. That what governments do. One though regarding "things are getting better" justification line - it would be palatable if previous, not improved, things were equally available at old prices."

"I think the Economist figures are just about right for the first 10 months of '06. However, I've noted food has really zoomed in the last 45 days, some items jumping 50% or more."

"Members of the fed and other banking and CRB officials and press members who report on inflation do not actually have to buy anything. They ride in limousines or company provided SUV's. They have their meals catered. Their hotels and plane tickets are paid for by their employers. Therefore you are quite right in noting that they are clueless as to how much anything costs, or what the rate of inflation is."

"Read with interest, your piece. In my experience, there is no question. My favorite "loaf of bread", is just short of $4.00. The packages of many items, ie: cereal for one, are imperceptibly shrinking, even as their prices rise. When a pound of butter is nearly $5.00, shouldn't your average "sheeple" begin to at least say "hey what the....? is going on here? Instead of believing the "core rate", (excluding everything I use) is only blah blah. Years ago, my parents would fill the car with bags from the grocery store for $25. Days ago I spent $97 and set the partially filled plastic bags in a pretty small area."

"My wife and I have traveled overseas for a year and a half. We came back to Florida a few weeks ago. We shop for groceries at the same Publix as before our trip. I asked my wife what she thought about the price level then and now. She said most items are up by at least 10-15%, and some higher. One example, in June 2005 we paid about 99 cents/lb of apples, now the price is 1.69."

"Of course there is inflation. It is primarily in the things we need, rather than the things we want. food vs computers etc. My food, energy, insurance, bldg. supplies, property taxes, supplements, have all gone up substantially. If I could get in front of one of the fed presidents I would ask one question. If you are so concerned with inflation why are you increasing the money supply at approx. 10% a year. They didn't really believe stopping the publication of M3 was going to stop people from figuring it out, did they? Bottom line, the Fed's create inflation they don't fight inflation. When you say this to people their eyes glaze over and they look at you as if you were from Venus. If Venus doesn't have a Federal Reserve system I might check it out."

"As far as inflation, all I need do is look at the necessities, and it shows us how bad it is. Housing, compared to 10 years ago is now more expensive by a factor of 10. I bought a 1998 Saturn car in 1998 and still drive it, why? Because new cars cost as much as I paid for my house 20 years ago. Insurance on a new car is ridiculous. Food, milk is double, eggs the same, meat more expensive, candy bars go up in price but get smaller, soup is twice the cost of 5 years ago and is in smaller cans. My salary, it is the same amount I made in 1996. My old employer went out of business and I had to start over. I have cleaned out my 401k to pay off credit card debt. Now my credit card payments have gone from 8 to only 1 per month. So to summarize, there is no way in HELL the government numbers are correct. The Economists numbers are closer to what I experience in my life. So can I ask you a question: Why is the Dow setting new record highs almost every other day?"

"I'm pleased to pay twice as much for my gas and milk. You know why? Because they are so much better. My gas is laced with ethanol, which according to my mechanics beats the daylights out of our fuel pumps and my milk has more hormones in it than ever. What are you complaining about? Look at all of the new and improved features we are receiving."

"I wish I could say that I keep a good sense of humor about it all, but I am actually very afraid of the future at this point. I see the debt and the games they are playing with our US dollar as a serious threat to average person’s well-being. I fear we are on the very edge of a precipice that will kill people and destroy the middle class foundation of our historic prosperity, that is IF we have not already gone over the edge and just do not know it yet, certainly we have at least one foot over the empty space below. When I look at the financial and economic graphs I see a sharp rise on the right side of most that deal with money creation, so sharp that in some cases they will be at the vertical very soon, like within a few months. The fact that they no longer report the M3 is to my mind a very bad sign. And we cannot comfort ourselves by the relatively benign ForEx as bad as it has been, because our money may not have dropped by that much relative to others is just a sign that the euro and yen and pound are also being debased. Ours is still buying less by the day."

There you go Wall Street - That is what Main Street thinks about the Spin-Doctors.

Andy Sutton holds an MBA in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics.

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