Inflation is Just a Gaslit Number

Does inflation of 5% feel like the right number? A recent study led by former U.S. Treasury Secretary Larry Summers claims inflation is sitting around 18% when adding financing costs including mortgage payments. Looking at McDonalds inflation since the 1980s, inflation appears to be four times higher than what has been reported. So as the gaslighting by governments escalates and the numbers can no longer hide the reality, how does this inflation calamity end and what do you need to do to protect your financial freedom?

Summers – An Inflation Bellwether

Larry Summers, an American Economist who served as the 71^st United States Secretary of the Treasury from 1999-2001 has recently come out to state inflation is actually around 18%, and it was a flaw in 1983 rejigged CPI calculation that has caused rampant miscalculated inflation.

His recent working paper for the National Bureau of Economic Research;

The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly | NBER

By ignoring the cost of finance in day-to-day inflation calculations, inflation has been misreported for decades and the reality of inflation is far higher than reported. The report highlights the damage of monetary policy as it sets interest rates based on inflation, but when interest rates increase there becomes a misrepresentation of the impact of these rates on inflation.

In fact, inflation rates are subjective, economists in statistical bureaus who report these numbers make hundreds of judgement calls, including goods substitution and what goods should be included in the basket. With political bias undeniable within these departments, over time, inflation has been massively underreported.

In 1983 an argument was made by BLS economist Robert Gillingham to remove home mortgage payments and replace it with rental rates as it was overstating inflation. The study claims this had a huge impact on current inflation rates as, due to the compounding rate of this ‘good’, it now makes up over 25% of the current CPI, and due to the rate of housing asset growth far outstripping this, mortgage payments inflation have been far higher, particularly in the higher interest rate environments we have seen in the last 3 years. This has led to underreported inflation, with interest rates rising so rapidly recently, the inflation becomes dramatically underreported.

What does McDonalds Inflation Say?

A recent report from the Kobeissi Letter found fast food inflation has doubled since 2014 while official data is at 31%. How can the official inflation numbers be so far from the hip pocket reality?

Even more damning is the additional Shrinkflation effect when added to inflation. Since the 1980’s, McDonalds, according to Bobby Casey, Big Mac shrunk 40% and is now 16 times the price it was in 1980. So, the Big Mac price is up around 20 times when accounting for Shrinkflation, but annualised price hikes are at 5.13 times. This indicates inflation is actually four times higher than what is reported – and correlates a lot more closely to Larry Summers findings.

Political Gaslighting

It’s one thing to fudge the figures, which as we’ve established both today and in the past in both unemployment and inflation is a common occurrence, but the sheer amount of gaslighting in regards to inflation in particular is alarming. Biden has recently doubled down stating inflation was at 9.1% when he came into office, despite official data of 1.4%.

Gaslighting even appears in governments Acts, with the Inflation Reduction Act, a wolf in sheep’s clothing by name, actually adding to inflation. It is currently estimated to have cost the U.S. economy $1.2trillion in additional spending, which ultimately would have added to inflation not reduced it.

The blame game by governments around the world continues with ‘Shrinkflation’ and ‘Corporate Greed’ common gaslit themes, although there is some truth to it, it appears corporates are just copying their governments with their hands in the cookie jars, with Presidents and Prime Ministers around the world increasing fiscal spending leading to record deficits and escalating debt. Debt payments in the U.S. now outstrip military spending. Australia is increasing fiscal spending at 6% per annum. IMF warnings to France as their deficits sit at 5.3% of GDP just to name a few countries who have not been able to control their spending.

For an alternative everyone said would fail (or alternatively wanted to fail), Argentina with runaway inflation for over 100 years moving the once wealthiest country to Developing Country status in the same period. Argentina elected Milei in December 2023. Inflation was running at 25% per month, now only six months later it is running at 8.8% per month. All while interest rates dropped from 126% to 40%, and a $2 trillion deficit to now having monthly surpluses. Now the pain is there, as Argentina has fallen into recession, but just like any addict, taking the fiscal drug away from an economy will have transitional pain, but to promote private sector investment and non-government reliance (previously 1 in 5 Argentinians collected a government salary) is not an easy transition. However, with the Argentinian Peso now one of the strongest performing currencies against the USD in the last couple of months, it at least appears to be doing what it was meant to do.

Protect your wealth

What these numbers are showing you, is believe what you see, believe what your budget tells you not what the government, who has no ability to balance a budget or to understand simple economics, is telling you. Invest in real monetary assets. Commodities including silver, gold and copper are up over 30% in this financial year following real world inflation. House prices in Australia went up 6 times between 1993 and 2018 (tracking more closely McDonalds inflation). Inflation is just a gaslit number.