Thursday, June 30, 2011

America's Latest Proposal, June 22 2011

Zero Hedge
A few months ago we reported on Goldman’s proposal to change the definition of GDP to make the US economy appear to be growing faster than it really is. So far, it has not caught on, as even the revised definition will soon confirm a contraction. But that proposal appears to have given Joe Biden some ideas, who now has taken the Fukushima approach to (sur)reality, whereby one merely changes the terms of data measurement when the data does not cooperate. Enter the revised CPI: “Lawmakers are considering changing how the Consumer Price Index is calculated, a move that could save perhaps $220 billion and represent significant progress in the ongoing federal debt ceiling and deficit reduction talks.

And because nobody has an issue with the current artificial hedonic and otherwise adjustments to the CPI which always reflect a far lower increase in prices than what is actually happening, here comes the government with another idea to make inflation appear to be rising even slower: “According to congressional aides familiar with the discussions, the proposal would shift how the Consumer Price Index is calculated to reflect how people tend to change spending patterns when prices increase. For example, consumers tend to drive less when gas prices increase dramatically.  Such a move is widely seen by economists as resulting in a slower rise in inflation. That would impact an array of federal programs that are linked to CPI including the Social Security program and income tax brackets set by the federal government. The proposal could lower federal spending by around $220 billion over the next decade, based on calculations by last year’s White House deficit commission, which recommended the change as part of its final report.”

What does this mean practically? SImply said, the worst of all worlds for the US middle class: “[the proposal] would likely lead to both lower benefits paid to seniors and higher taxes paid by most people who pay federal income tax.” We expect this last-ditch accounting gimmick will be implemented shortly, and the broader American population will not care one bit that it’s purchasing power will see a step function drop yet again in the ongoing crusade to destroy the dollar.

More on this surreal idea which is actually being very seriously discussed in DC:
According to two congressional aides familiar with the budget negotiations, the shift is being “seriously discussed” as part of the ongoing talks to strike a budget deal, that would be used to ease the passage of a required increase in the country’s debt limit.
Those talks involve Democratic and Republican lawmakers from both chambers and are led by Vice President Joe Biden. The group held its latest meeting Tuesday as they strive to reach the broad outlines of a compromise on federal spending by the end of the month.
In a press conference that took place before the meeting, House Majority Leader Eric Cantor (R., Va.) declined to comment on the specific proposal, other than to say that “a lot of things are on the table.” But asked whether the proposal would be interpreted as a tax increase and therefore a non-starter for Republicans, Cantor said it could be seen as both impacting tax rates and benefits paid out by the federal government.
When asked about the idea after the meeting, Rep. Jim Clyburn (D., S.C.) said everything is being discussed.
It could be easier for both parties to agree on than a significant overhaul to the Medicare proposal or an increase of taxes on wealthier Americans.
“It’s certainly something that is going to be considered,” said James Horney, director of federal fiscal policy at the Center for Budget and Policy Priorities, a liberal think tank. “There are questions whether it would be politically easy.
Several senators that are not party to the Biden-led talks voiced support for the proposal including Budget Committee Chairman Kent Conrad (D., N.D.), while Sen. John Thune (R., S.D.), a member of the Republican leadership team, said it should be looked at as part of the negotiations.
Washington just took extend and pretend to a whole new level.

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