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What is the real inflation? According to the Bureau of Labor Statistics, or BLS, the annualized core inflation was 1.8% for august. However, some are questioning the official numbers. For example, the American Institute for Economic Research (AIER) estimated that inflation was 5.2% in 2012. Officially the inflation for that period was 1.9%.

Another measure is done by Shadowstats, which estimates the inflation at over 8%. Those numbers also depend on what type of methodology is used. When using methods from 1980 the inflation will be higher than using current methods. The methodology has changed many times over the years. Is this just a coincidence? Is the BLS accurately calculating the inflation? Or is it just BS?  

Investors like Marc Faber and Peter Schiff also say that inflation is considerably higher. Peter Schiff estimates that the real inflation is between 7% and 10%. The prices of commodities have also been rising faster than the official inflation.  

Some economists, like Paul Krugman, don'€™t question the official inflation numbers but what about the US Postal Service? They'™ve been losing billions because they are not allowed by law to raise their prices more than the official rate of inflation. Their costs have obviously gone up more than that.

The Big Mac index is also an interesting example. This index has tracked the price of what a Big Mac costs in different countries since 1986. It has shown that since the quantitative easing started the price has risen considerably more than the official CPI. In 1986 a Big Mac cost $2.36 dollars. Today that cost has risen to $4.33 but if the price had only risen as much as the official CPI the same Big Mac would only cost $3.49.

The Big Mac index and the official CPI

The inflation seems to be somewhere between 5% and 10%. This has huge consequences. Not only has the average American gotten poorer but the higher inflation means that there’s no growth in the economy. The official growth rate for the second quarter was 2.5%. If instead the real inflation is 3% to 8% higher this would mean that the economy has been contracting, not only for the last year but for the last six or seven years. Most likely the economy is contracting right now at a rate of 2% per year.  
All the government is doing is adjusting the numbers so that people think that the economy is recovering. In reality there is no recovery. America is in a deep depression.

What do you think? Do you think the inflation is higher than 1.8? Comment below and let me know.  

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What is the real inflation?

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So Ben Bernanke decided that he isn’t going to taper. The Fed will continue to buy 85 billion dollars of bonds a month. Most commentators were surprised because they expected a decrease in the Fed spending. The dollar is down and gold is up.

The Fed is going to continue destroying the value of the dollar. More dollars in circulation means the value is going down. That’s for certain.

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Should the Federal Reserve taper?

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America is once again standing on the brink of war. Barack Obama has been trying to gain support in favor of a military intervention in Syria because allegedly the Assad regime used chemical weapons against civilians. Russia is questioning if Assad is really responsible for the chemical attacks and the Obama administration has not presented any clear evidence.
Over 1400 people died in the chemical attacks and they were without a doubt horrible but what about the more than 100000 people that have died in the Syrian war due to conventional weapons? Shouldn’t the world have reacted then? President Obama said that chemical attacks would be crossing a red line. Some say that was an unfortunate statement. Now that the red line has been crossed America has to act otherwise it could lose credibility. It was a gotcha moment.

An intervention would be unwise. It would help the Syrian opposition, which is made up to a significant part by Al-Qaida supporters. If there is a military strike, will it be a time limit? That would send a signal to Assad that he only has to endure the American attack for a certain time, then afterwards he can kill all he wants. If there isn’t going to be a time limit will America intervene every time chemical weapons are used or arbitrarily? If American intervention leads to the overthrowing of Assad this could end up creating a regime that is worse than the previous one. What then? A new military intervention? This could lead to a new war with no clear exit strategy, like Afghanistan, like Iraq.

The Obama administration has been beating the war drum awfully loud in the case of Syria. When North Korea’s Kim Jong Un threatens our allies in East Asia he’s dismissed as lunatic and not taken seriously but when it comes to Syria Obama is going out of his way to start a war.
Obama, the democrat president, which was going to be different than Bush, is now acting like Bush. There is one difference tough, Obama is seeking the approval of Congress. Fortunately, or unfortunately for Obama, Congress is showing a great reluctance to go to war and this factor alone could stop any intervention. Now, after Kerry’s rhetorical slip of tongue, where he proposed a way to avoid intervention if Assad would hand over his chemical arsenal to international oversight, the Russians quickly accepted the proposal and are now actively pursuing such a solution. That was a gotcha moment too. Some are even saying that Putin threw Obama a lifeline.

The whole thing is a big mess. Obama is trying to reach a compromise between the war hawks and war opponents but he’s clearly not doing a good job and he doesn’t have any strategy. America’s diplomacy has been amateurish and arbitrary. The coalition in favor of military intervention is a bizarre one, consisting of America, Israel, Al-Qaida, Turkey and Saudi Arabia. On the other side you have the Assad regime, Russia, Iran, Hezbollah, China and the rest of the world more or less against intervention. Americans are tired of war. The safest option is not to intervene.

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Should America intervene militarily in Syria?

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Wed Sep 04, 2013 at 07:47 AM PDT

American Gulag

by John Promethos

The Obama administration has recently announced plans to cut the prison population. It’s high time. There were almost 1.6 million prisoners in America in 2012, which represents a quarter of the world’s inmates. The incarceration rate is the highest in the world, over 700 prisoners per 100,000 people. Australia has 130, Germany 80 and Sweden less than 70. Even Russia has a smaller rate with about 480.  

Are Americans more violent? Well, no. Less than half of all prisoners are behind bars because of violent crimes. Furthermore before 1980 the number of prisoners was less than 500,000. The increase in the prison population has occurred after 1980. The reason for this dramatic change is bad policy.  

The “war on drugs” is largely responsible for the increase. The percentage of state and federal prisoners sentenced for drug-offences was only 10.4% in 1974 but by 1997 it had shot up to 26.9%. In 2010 the number had gone down a bit to 21.7%.

A major driving force behind this bad policy is the prison-lobby. About 8% of the prison population, or 130,000, are being held in private prisons. The private prison population has grown the fastest and it’s no wonder why. It’s good business.

The two largest prison companies, Corrections Corporation of America and the GEO Group, had almost 3 billion dollars in revenue in 2010. The prison-industry’s lobby organization, ALEC, has been instrumental in making sure that the number of prisoners in private prisons keeps growing. Prison lobbyists have spent 45 million dollars in lobbying over 10 years. And they’ve gotten a good return on their investment. For example SB 1070, Arizona’s immigration law, which sends immigrant detainees to private prisons. Other examples include mandatory minimum sentences for non-violent drug offenders, “three strikes” laws and “truth in sentencing” laws.

CCA sent a letter in 2012 to prison officials in 48 states with a proposition to buy prisons in exchange for a 20-year management contract and a guaranteed occupancy rate of 90%!  That’s right, the prison industry wants the state to guarantee a minimum number of prisoners. They also cherry-pick prisoners. They want prisoners that are healthy and not violent. That way they make more money but it doesn’t stop there. Prison companies have even paid judges to send them prisoners. In Pennsylvania, two judges, Mark Ciavarella and Michael Conahan, received kickbacks for sending kids to prisons. They were paid 2.6 million dollars by prisons for jailing 5000 people. One kid sent to prison for fighting on a school bus. In another case a 17-year old was sent to prison for 6 months for a minor drug charge and committed suicide after he got out.

Another aspect of the prison industry is the fact that prisoners are used as cheap labor, which outcompetes ordinary business.  Take for example Federal Prison Industries, FPI. They use prisoners in the manufacturing of parts of Patriot missiles and F-16 fighter jets. They also make army uniforms, which led to problems for their Atlanta based competitor, American Apparel, which hires ordinary non-prison workers. American Apparel had to lay off hundreds of workers even though their uniforms cost 29$, which is 5$ less than for FPI uniforms. Firms like FPI have priority because they use prisoners.

Prisoners are used in the production of motorcycles, canoes, license plates, jeans, and waterbeds. They’re even used as firefighters, like in California, where they received 1$ per hour and reduction on their sentences. What does it take to get a job these days? Go to prison?

About 74 billion dollars a year are spent on corrections and nearly 800,000 people work in the prison industry. That’s more than the auto industry. This is one of the reasons why America is going bankrupt.  Texas for example was headed for financial disaster which made the state reassess its prison polies. As a result Texas has stopped building new prisons.

The idea to make profits off of prisoners in nothing new. The Soviet put millions of people in the Gulag and then forced them to work in industries such as mining, timber, arms and railroad construction.

It’s a good thing that the Obama administration wants to cut the prison population but let’s not get our hopes up just yet because cutting the prison population means going against the prison lobby and Obama has shown in the past that he is all too willing to compromise.

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Should the prison population be reduced?

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Wed Jul 03, 2013 at 03:06 AM PDT

Will the top 1% move to space?

by John Promethos

South African movie director Neill Blomkamp, the creator of District 9, has finished a new sci-fi movie, Elysium, where the richest people live on an exclusive space station, while the rest live on an overpopulated and impoverished Earth. Judging by the trailers and what I've read about the story it seems to be a great movie. I find it refreshing to see an original sci-fi movie, which actually provokes discussion about important issues.
The idea, which sounds extreme, could become reality in the future.
The rich always look for nice places to live where they don't have to pay any taxes. If space is such a place then that's where they'll go.

One of the people who would welcome such an idea is Peter Thiel, billionaire and co-founder of PayPal and Facebook. He now wants to create a new libertarian state out in the ocean by using huge platforms as building blocks.
When he created PayPal he wanted to create a new currency, free from any state. Now that didn't work but he did create a good company. He seems to be an idealist but with a sense of knowing how to do business. If this idea of creating a free country in the ocean should become reality it'll probably fail at becoming the libertarian utopia Peter Thiel dreams about but it could very well become a good business, just like PayPal.

On the other hand if Peter Thiel really does create a truly free state with low taxes and minimal government would such a state be successful? Wouldn't it eventually just turn into an over socialized state with rampant deficits just like any other state? Or would it become a thriving society and set a new standard for nations to aspire to? Or perhaps it would become a new tax haven for the rich?

My guess is the state would eventually fail. There are plenty of other tax-havens to choose from and creating a utopia of any kind has never really succeeded. States always grow, in the sense that the bureaucracy grows. Politicians tend to promise more and more to the people and social programs become larger while no one really thinks about the long term economic consequences.

It's good to have dreams but when realizing those dreams it's best to have a clear and concrete goal. Otherwise the end result will probably become something different than what was intended. Especially when we're talking about an ambitious idea like creating a libertarian utopia.

I'd love to see Neill Blomkamp and Peter Thiel in a discussion debating over the responsibilities of the 1% and how to create a viable society. These are questions that are as important as ever and to which we have to find answers.

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Thu Jun 13, 2013 at 03:36 AM PDT

The food waste program

by John Promethos

Recently there has been much debate over a farm bill that expands taxpayer-subsidized crop insurance and rejects cuts in food stamps for the poor. The issue is a sensitive one and touches the very core of democrat and republican ideologies.

The democrats want to help the poor and prevent them from starving while the republicans want to cut government expenditure. Both sides have some valid arguments but instead of having a calm and factual debate the issue has become politicized, as is all too often the case.

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Should the private sector take on a greater role of feeding the poor?

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Mon May 06, 2013 at 06:02 AM PDT

Japanese war games

by John Promethos

Tension in East Asia has been rising ever since Japan embarked on a path of extreme money printing. Japanese Prime Minister of Japan Shinzo Abe hopes that the monetary stimulus will help the economy. It may do the exact opposite.

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Tue Mar 26, 2013 at 03:10 AM PDT

Show me the (gold)money!

by John Promethos

Recently there have been more and more rumors about the actual amount of gold that is held by central banks. America has the largest gold reserves, which amount to 8133 tons. However, some doubt that this is the case. There's a risk that the gold could have been replaced by tungsten with only a thin layer of gold or perhaps leased out.

So, the U.S. Treasury conducted an audit of the gold stored in the New York Fed and elsewhere. The results, which were released in January, showed that the gold was not only intact but even more pure than previously thought. 27 ounces were added to the gold reserves and the auditing process itself destroyed 10 ounces.

But doubts remain. Shouldn't the audit have been conducted by an independent firm? And what about the gold stored in Fort Knox and West Point? When was the last time that gold was audited? Even though it seems unlikely that the U.S. would possess less gold than is stated officially the situation is bizarre. Let's take a look at the information about international reserves released by the IMF: http://www.imf.org/...

According to this the U.S. has 261.5 mln ounces of gold, which should be worth almost 420 bln dollars using the current gold price of about 1600 dollars/ounce. However, according to the IMF statement the U.S. gold is only worth about 11 bln dollars! This would imply a price of only 42 dollars/ounce. When has the gold price been that low? Why this inaccurate estimate?

Why are the gold reserves of other countries up to date? Germany has 109 mln ounces valued at almost 183 bln dollars, which gives a price of 1674 dollars/ounce. The value is up to date. Poland's gold for example probably hasn't been audited since before WWII, yet its value is estimated at 5540.78 bln dollars. Divided by 3.31 mln ounces this gives a price of 1674 dollars/ounce. The estimate is up to date. France has 78.3 mln ounces of gold valued at 130 bln dollars, which gives a price of 1664 dollars/ounce. Also up to date. Sweden has 4 mln ounce of gold valued at 6.7 bln dollars. This gives a price of 1662 dollars/ounce. The price in this case is up to date as well. The IMF works in mysterious ways. This is probably not the end of the doubts as to the gold reserves.

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