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Paul Krugman: "If the Trump administration succeeds in politicizing the BLS, TIPS won’t be protected against inflation. They’ll only be protected against inflation the administration is willing to admit is happening. Have investors thought through the implications?"

Macro data, like all else, must conform to the narrative told by our unhinged emperor, wherein all is bigly great, except for certain major American cities, which are war zones -- shortly to be pacified by Our Troops. Between the general erosion of the rule of law, targeted shakedowns of individual companies or CEOs, and punishment for insufficiently praising the Great Orange Business Genius, the U.S. is rapidly becoming uninvestable.

Have investors thought through the implications?

Perhaps so.

The yield on 10 year inflation protected US government bonds is about 1.77%.

The average of the yields of the equivalent products from Canada, the UK, Germany, France and Italy is about 1.37%. One could interpret the gap as some unknown mix of the expectation of a weaker currency and the expectation of dodgier inflation data.

And the relative likelihood of default, of course---the US can't be in a position that it must default, but could be in a position that it defaults anyway.

Jim

Again with the TDS. Jeezus.🤷‍♂️

"Again with the TDS." - Whiplash

How is your willingness to ignore the obvious considered TDS?

Willful ignorance is not a very credible method of argument.

Would this be the same Paul Krugman that in November 2016 predicted:

"On the question of when markets would recover, Krugman stated, "a first-pass answer is never." He followed this by explaining his view that the combination of Trump's ignorance of economic policy and the world's already fragile state would lead to a global recession.

FWIW, the S&P 500 closed at 2,239 in December 2016 and is currently 6,750.

Grab your socks,

Gold is now at $4054 per troy oz (for those who are saddled with that arcane metric thing, that's about $130.62 USD per gram).
Bitcoin (imagined money, or not) is over $123K USD

These are not prices based on presumed inflation, but rather on the implied threat to the value of the USD that a bond default would inflict.

Interestingly, the US Dollar Index is at about 99 - which means, either there are two views on things, or there is an implication that a default oon the USD will bring all boats lower.

Jeff

Gold is now at $4054 per troy oz ... Bitcoin is over $123K USD.
These are not prices based on presumed inflation, but rather on the implied threat to the value of the USD that a bond default would inflict.

Well, maybe, maybe not.
Like most disinterested observers, I would agree that the legislative/regulatory/customary systems underpinning the US dollar are not as trusted as they were.

But these price moves are also easily explained as simple bubble/momentum/FOMO exuberance. Rationality goes out the window when you see your neighbour making a lot of money without effort.

Jim

FWIW, the S&P 500 closed at 2,239 in December 2016 and is currently 6,750.

If we assume that stock price movements over any randomly chosen period actually mean something, then consider this: since inauguration, the S&P 500 has risen about 11% during Trump’s second term, compared with 13% during his first and more than 20% at the same point in Obama’s and Biden’s presidencies.

The yield on 10 year inflation protected US government bonds is about 1.77%.

The average of the yields of the equivalent products from Canada, the UK, Germany, France and Italy is about 1.37%. One could interpret the gap as some unknown mix of the expectation of a weaker currency and the expectation of dodgier inflation data.

Isn't the yield primarily determined by the bond market's expectation of future inflation, as it is for all long term government bonds?

Elan

I would assume that the rate is risk specific, as they are all inflation protected bonds.

During the last run of inflation, it was regularly complained (as well as pragmatically demonstrated) that the government's model of reporting inflation was significantly under=reporting it. With the recent changes at the Bureau of Labor Statistics, where Trump fired the director for reporting disappointing numbers, it becomes a probabilistic challenge to use any numbers the government may end up publicizing (once they open the doors again).

On a personal basis, I gauge inflation by the fact that both a NYC subway ride and a slice of pizza (in neighborhood places) were $.15 in 1966 and $.20 in 1970. Today a NYC Subway ride is $2.90, increasing to $3 in January and a slice of pizza is between $3.25 and 3.50. In 1966, the base price for a Volkswagen Beetle Deluxe Sedan was $1,585. In 1966, new Chevy cars could cost from about $2,066 for a base C10 pickup to $4,295 for a new Corvette, while many popular models like the Biscayne, Impala, or Bel Air had base prices in the $2,000-$3,000 range. A luxury car (today's equivalent would likely be a Lexus LS460 or Mercedes S500), like a 1966 Cadillac Coupe de Ville having a base price of around $5,339, a Fleetwood 60 Special at approximately $6,479, and a Fleetwood Brougham starting at about $6,695.

Real estate has tended to outperform those numbers.

Using the Consumer Price Index (CPI) from the Bureau of Labor Statistics (BLS), the total cumulative inflation between 1966 and today (October 2025) is 899.93%.

I'm going to say that the cumulative inflation over those 60 years was closer to 2,000%.

Of course, gold (which was illegal to own in the US back then) was $35 an ounce and is now over 100X that price.

While I-Bonds and TIPs will outperform cash or standard government bonds during times of inflation, the US government by overtly lying about the rate of inflation will keep their pound of flesh.

Jeff
(Not a gold bug, but just sayin')

the U.S. is rapidly becoming uninvestable.

And yet the capitalist class keeps dumping money into the US stock market. I’m having a hard time wrapping my head around the rapidly deteriorating political and economic situation in the US with the irrational exuberance of the monied. Maybe the 1.5% of all US billionaires sitting on the orange one’s cabinet know something about the profitability of fascism that the rest of us don’t know?

The line from "Schindler's List" where Oskar explains to his wife why he is now successful is:

"In every business I tried, I can see now, it wasn't me that failed. Something was missing. Even if I'd known what it was, there's nothing I could have done about it because you can't create this thing. And it makes all the difference in the world between success and failure."

His wife asks, "Luck?"

Schindler responds: "War.

War against immigrants, drugs, Blues in the city streets, soon, possibly war against Venezuela, Greenland, maybe even Canada. War against fake news, statistics which are uncomfortable ...


Jeff

Fear returns to the stock market for the first time since early May...

https://www.cnn.com/markets/fear-and-greed

"In the short run, the market is a voting machine, but in the long run, it is a weighing machine." -Ben Graham

Maybe the 1.5% of all US billionaires sitting on the orange one’s cabinet know something about the profitability of fascism that the rest of us don’t know?

Putin is reported to be worth a couple of hundred billion USD despite the disastrous state of the Russian economy. I'm sure there's no connection. Aside from all those oligarchs falling down stairs and out of windows and drinking bad tea over the last few decades. But surely that wouldn't happen with Cabinet Billionaires!

During the last run of inflation, it was regularly complained (as well as pragmatically demonstrated) that the government's model of reporting inflation was significantly under=reporting it...
slice of pizza...Subway ride ... Volkswagen Beetle ...C10 pickup ...

When judging longer run inflation like that, it's important to pick examples that are not undergoing much product change, nor primarily driven by legislated situations.
A car now is not at all the same as a new car then, and same for the average newly built 1500 sq ft house. The fare for the subway is probably set much more by politics than by the cost of providing the service, or supply or demand. A men's dress shirt is one traditional example, and the best-selling SLR film camera was a good benchmark for a long time. And though it's legislatively driven, the cost of a first class postage stamp was a good yardstick for a long time. A loaf of bread, a men's haircut, a bar of soap, a paperback novel.

Lots of folks think reported inflation is "fake" because they perceive it to be higher than the reported figures, and those are likely people who are spending an unusually large amount on things with product specific price increases, like health care. Many other people experience much lower than average inflation because they spend disproportionately on things that aren't having that problem, or are falling in price in real terms over very long periods, like clothing or computers or tools. Those folks don't have any suspicion of CPI figures, and they get a real increase in purchasing power if their salaries merely track CPI.

It is because of this strong effect of very product- or service-dependent price changes that the US CPI is (basically) calculated using the median price change, not some sort of average that would inevitably be distorted by a few outliers which might or might not be representative of anything in particular. There was a shortage of eggs in the US and the price spiked, but that price change was all about the shortage of laying hens, not anything to do with a US dollar being worth less.

Personally, I look at the MCT (multivariate core trend) inflation figures. This is based on the notion that the inflation for any product is the sum of (a) a single global monetary inflation amount in the period, plus (b) a factor specific to that product category. So, for 100 product categories, you get 101 factors: one for each category, and one to rule them all.
Go here and click on the graph to see the latest figures. https://www.newyorkfed.org/research/policy/mct#--:...
Latest number year-on-year is 3.05%. Basically top of the flattish range since mid 2023. For the deeper geeks, the "decomposition" tab tells you that, though US MCT inflation has been flattish for around 2.5 years, housing inflation is a gradually shrinking fraction of the effect and goods inflation has been accounting for a gradually rising fraction. Inflation from services has been the biggest factor among the three, but not becoming bigger. Nor smaller.

So: worry more about the specific prices of the things you're likely to be buying in future, and less about the CPI figures being faked.

That being said, do I expect the US to attempt some Argentina-inspired cooking of the CPI figures in the near future? Seems very plausible. But it would take a whole lot of that to make the absurd figures from Shadowstats make any sense. They suggest that "real" inflation has been about 5%/year higher than reported on average over the last 20 years, implying that the purchasing power of a dollar is only 40% of what a CPI-adjusted dollar would imply over that stretch. That simply isn't true. It's much more defensible that a dollar has lost general purpose purchasing power since 2005 at about 2.5%/year than at about 7.5%/year. Follow the haircuts and soap.

Jim

Jim: Follow the haircuts and soap.
______________________________________________________

Admittedly, in support of his hypotheses, I don't think I have purchased a bar of soap in a couple of decades (not because I don't wash, but because I travel enough that I end up "acquiring" all I need along the way :-).

That said, I find that, world-wide, the cost of a man's haircut is generally about the same as the minimum end of the average wage in that city/country. When I was a kid, it was well under 10 bucks (exactly how much is lost in the fogs of time. Nowadays, in "immigrant" neighborhoods in NYC, it runs about $15-$17, around where I live, about $35-$50 and in posher neighborhoods is more related to the rent than the wages.

My favorite haircut story is: I was wandering through Singapore when I saw a sign on a barber shop window: "Men's Hair Cut $20" (those were Singapore bucks). So I went in and the young barber gave me a decent cut for what I thought was a bargain price. Then he asked if I wanted my beard trimmed and I said "sure". He started cutting it one hair at a time and kept asking if he was hurting me. I asked if he had ever trimmed a beard before and he said that I was his first as none of his customers had one. I explained that he could cut it the same as he did head hair" and not to worry. On another trip, I went to a Syrian barber shop in Germany and got a hair cut. When it was over, he asked if I wanted "barbering". After a bit of confusion (as the request seemed bizarrely redundant), it turned out he was asking if I wanted my beard trimmed (at which point it dawned on be that Barbarossa was known as "Red Beard" and for my entire life until then I had been misinterpreting the word Barber).

Women seem to have less correlation. We tend to travel for months and every four weeks or so, my wife goes in for a touch-up of her paint job (please don't tell her I put it that way :-). Anyhow, if we are going by ship, the on-board salons charge a considerable amount of their dubious results, so I generally do some research and make appointments in advance in ports we intend to stop in. While I fully expect the prices quoted, say in Norway, to be high, for some reason, Australia takes the lead (recently, I've been quoted $100-$160 AUD for a service that my wife pays about $25 USD in NYC).

Jeff

The other thing to consider is the sale price of a house is only loosely associated with housing costs due to the cost of financing. If you’re paying cash you’ll experience a much higher inflation than if you’re getting a mortgage.

During the last run of inflation, it was regularly complained (as well as pragmatically demonstrated) that the government's model of reporting inflation was significantly under=reporting it.

This isn't really true. The inflation numbers are damped (mostly by spreading instantaneous housing inflation across a period of time*), but over time they are correct, well, as correct as the overall methodology** (aside from damping) can provide. Basically (and very roughly) instead of reporting a quarter of 12% inflation, we reported a quarter of 8% inflation and spread the remaining 4% across the next few quarters.

* Damping housing inflation makes perfect sense as housing inflation is something experienced in step functions rather than continuously. You buy a house every 7-10 years on average, you sign a new rental contract every few years, and your rent usually goes up only once a year or two, etc.

** Taking into account improvements in products as the years go by is very problematic, but it somehow has to be accounted for. The 1970s Cadillac Deville isn't anywhere near as good as the 2025 Lexus LS500.

Of course, gold (which was illegal to own in the US back then) was $35 an ounce and is now over 100X that price.

It doesn't make sense to look at gold in that case. Because you couldn't buy gold at $35, nor could you buy a gold ETF. Maybe you could have bought a basket of gold mining stocks, but they haven't (I'm pretty sure) gone up anywhere near 100x since then. You perhaps could have bought gold jewelry, but it was far more than $35 an ounce.

While I-Bonds and TIPs will outperform cash or standard government bonds during times of inflation, the US government by overtly lying about the rate of inflation will keep their pound of flesh.

Lying about the rate of inflation won't help much. That's because:
1. A VERY small amount of treasury debt is inflation linked.
2. All treasury debt today, without exception, is continuously rolled over into new debt, and interest rates are determined at auction, not based on reported CPI, but instead based on supply and demand.

"our unhinged emperor..."

Remember that 77 million American citizens legally voted for him. Suspect more citizens would vote for him today. Maybe he should run again in 2028? What do you think. That's what kings do. Wait, emperors and kings aren't elected.

Stock market up 20% YTD with so many here running for the hills in April when fear and anxiety (mental illness)got the best of them. Loved watching it.

DJT was able to close our sovereign border in weeks (previous admin couldn't/wouldn't in four years), and in 9 months arrest thousands of criminals, make peace and trade deals, and generally gets things done. He assembled arguably the best cabinet in decades - business leaders and achievers instead of govt bureaucrats and DEI hires.

But he's a "moron" a "king" an "emperor". I guess because he gets things done.

I'll take it compared to four years of a dementia patient in chief, who didn't know where he was (had to be rescued by the easter bunny)and couldn't complete a coherent sentence.

TDS runs very deep here. Sad.

Well said, Breck.

He assembled arguably the best cabinet in decades

Recently saw a placard that answered this statement. The placard read "I have seen better cabinets at IKEA"

Aussi

Without my comment, the following were posted by the White House, the President and the Vice President this weekend. I assume they are their adult-level comments on the democratic political system that we have taken for granted:

X:
WhiteHouse/status/1979723618155466841

WhiteHouse/status/1979729073497936319

Bluesky:
atrupar.com/post/3m3jbffj3q22w

decensored.news/post/3m3jeiugjcc2t

atrupar.com/post/3m3kjyarncn2b

paleofuture.bsky.social/post/3m3j66lneic2j

He assembled arguably the best cabinet in decades

A stunningly counterfactual statement.

Possibly the worst, most sycophantic cabinet in US history.

I know..I know... politics.

So, come on over to the US Politics board.

That should have read "US Policy" board.

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