Saturday, June 10, 2006

Here's how they did it.

(New Hong Kong complex consisting of 100 sf apartments. What our descendants face unless we get a grownup like me in the White House.)

The government standfastly maintained during the housing price bubble inflation rates were low. Anyone with functioning brain knew otherwise, and if financially capable, acted appropriately.

CPI numbers were artifically low because instead of using the cost of housing in the index imputed rents were substituted. Rents are less flexible over the short term for a variety of reasons such as leases and maintaining cordial relations with tenants.

I noticed that in my everyday life. Until recently sold, the house next to mine in Oakland commanded a low rent in relation to the sale price. There's a rent ceiling to what people can or will pay regardless of the value of the home.

There are a number of political and economic advantages to fiddle with the CPI. For example, it keeps the folks calm and reduces mandated upward inflation adjustments to entitlements like Social Security.

With the property market leveling off, and rents on the rise as more and more people can't afford to buy, the government will shift to calculating the CPI based on housing prices!

With Americans doped up on sex, entertainments up the wazzoo, and working themselves to death they won't notice anything.

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