Chris Mayer recently had the opportunity to interview John Williams and had some key insights regarding the current economic environment (Full Article).
"If you asked a bunch of people sitting at a bar what the inflation rate was, you'd get numbers closer to the truth than what the government says in its official numbers." So said economist John Williams one afternoon over meatloaf and mashed potatoes in a little restaurant within walking distance of his New Jersey home. I made the trek out here, along with my publisher and friend, Addison Wiggin.
In a nutshell, here is the story. Government officials, mere self-interested mortals like the rest of us, want to paint the best picture possible. This, they've found, tends to win them more elections.
So every administration for years and years has made little adjustments in reported figures for things such as inflation. These little adjustments, as you might imagine, always go one way. They make things look better than they otherwise might. Over time, these little adjustments start adding up. Then you get big differences between what is really happening and what the reported figures say.
Williams has gone back and reversed these adjustments. For example, take a look at the official U.S. inflation rate, popularly measured using the consumer price index (CPI). Williams, by just using the pre-Clinton era CPI, gets a number vastly different from today's official figures:
The official numbers tell us inflation is less than 3%. Yet, when calculating inflation using the same methods that were used before Clinton took office, Williams gets inflation closer to 6%!
The latter figure is nearer to the experiences of everyday people living in this country, who have to pay for groceries, gasoline, insurance, medical bills and more. This is why Williams says that the average person has a truer sense of price inflation than what the official numbers would have you believe.
Williams ticks off the data that confirm a recession in progress: much weaker than expected housing starts, retail sales and industrial production. Also, a weak manufacturing survey, sluggish annual growth in durable goods orders, rising new claims for unemployment insurance and anemic employment growth.
Williams' Shadow Government Statistics shows the economy shrinking now, whereas the official government numbers still show positive growth.
We won't get into all of the details. But what does an inflationary recession mean for investors? Think 1970s. Not disco and bell-bottoms, but rising prices for gasoline, groceries and gold. Think higher interest rates.
