Do you believe the BLS and Ben Bernanke or do you believe what you actually pay at McDonalds? It’s sad that the masses are so terrible at math that they don’t even realize what has been done to them by the bankers. Ignorance is a choice.
The Big Mac Index Reveals the REAL Facts On U.S. Inflation!
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A look at the trend in prices of the Big Mac clearly shows that investors are being penalized with higher inflation, lower income from bonds and certificates of deposit and being led to believe that the economy is growing better than it really is. [Let me explain.]
So writes James Cornehlsen, CFA (www.dunnwarren.com/) in edited excerpts from his original article* entitled The Big Mac And Your Financial Health: Rising Burger Prices Show A Worrying Trend.
This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Cornehlsen goes on to say, in part:
The Economist… created the Big Mac Index in 1986…[which] was created to compare the price of currencies between different countries. The index is based on the theory of purchasing-power parity, which says that exchange rates should eventually adjust to make the price of a basket of goods the same in each country. The Big Mac Index basket contains just one item: the Big Mac hamburger. It works by calculating the exchange rate that would leave a Big Mac costing the same in each country. Because it contains beef, dairy (cheese), wheat (bun), cost of labor, and the cost of real estate, I believe it is a good representation of prices in the United States and abroad.
Using the Big Mac Index to Measure Inflation
[For our purposes in this article,] rather than use the Big Mac index for comparing the value of currencies between countries, we… [have graphed] the price of the Big Mac within the U.S. each year since 1986 to see how it has change over time….[and it shows (see chart below) that] prices have accelerated much faster than the official reported Consumer Price Index (CPI) from the Bureau of Labor Statistics.
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On the BLS’s website, CPI is defined as “a measure of the average change over time in the prices paid by consumers for a market basket of consumer goods and services. The basket includes food & beverages, housing, apparel, transportation, medical care, recreation, education & communication, and other goods & services”. However, there are two broad concerns with the CPI.
- CPI accounts for the substitution effect whereby if the price of beef increases, it is assumed that fewer people will buy beef and will instead buy chicken.
- There is a “chained” effect meaning the basket of goods isn’t consistent from one time period to the next. The reason for this is that it is believed people change their spending habits as prices change which is why the bureau of Labor Statistics instituted this policy.
The Big Mac Index vs. the Consumer Price Index
Since 1986, the price of a Big Mac has increased 171% from $1.60 to $4.33 today. During this same time period, the consumer price index has increased at a much lower rate of 109%….In 1986, $1 would have purchased over half of a Big Mac. Today you would have to cut the Big Mac into five pieces and only eat one of the five pieces for $1. Consequently, each dollar we have is buying a lot less.
Big Mac Index Implications Related to Inflation
Individuals on Social Security are provided a cost of living index. This index is based on the Consumer Price index. If an individual received $1,000 per month in 1999, they are receiving $1,360 today. In contrast, if the Big Mac Index were used, beneficiaries would be receiving $1,770. By using the consumer price index, the government is paying out $410 less than they would otherwise pay based on the rise in the price of a Big Mac….By understating inflation, the federal government is effectively reducing the amount owed to retirees and thereby cutting the long-term deficit.
Big Mac Index Implications Related to Bond Prices
Ed Easterling, founder of Crestmont Research, links inflation to the rate of interest rates. By printing money to buy bonds, the government has pushed the interest rate of a 10-year government bond down to about 1.70%. However, Ed Easterling shows that the 10-year government bond rate should be about 1% above inflation.
- The current rate of inflation reported by CPI is 1.1%.
- Adding 1% for the increased risk of holding a bond for 10 years gives you a rate of at least 2.1%, and that’s using official inflation estimates.
- If we base our calculation on the Big Mac Index, however, inflation is 3.1% and adding 1% to that for the risk of holding a bond for 10 years gets a rate of 4.1%.
- The current interest rate of a government bond is 1.7%, but if we were to account for inflation as seen by the rise in the price of a Big Mac, the interest rate should be 4.1%.
- Consequently, if 10-year government bonds were to increase from 1.7% to 4.1%, bond indices would decline by about 20%.
- In other words, long duration, 10-year government bonds are overvalued by about 20% mainly due to persistent intervention (manipulation) by the Federal Reserve.
Propping Up GDP Numbers by Underestimating Inflation
Lastly, Gross Domestic Product (GDP) is the measure used for the growth rate of the overall economy. GDP is adjusted for inflation. An understatement of assumed inflation makes the reported GDP headline number look better, and using the Big Mac Index instead of the official CPI would reduce the latest GDP growth rate of 1.26% and cause the report to show that GDP declined. Consequently, economic growth looks stronger using CPI rather than the Big Mac Index.
Conclusion
The price of a Big Mac is rising faster than the official rise in consumer prices and has been since the late 90′s….[and] foreshadows how the printing of money is eroding the financial system’s arterial walls. The impact is broad based:
- Each dollar we own is buying less.
- For individuals relying on Social Security, the compensation for inflation is not keeping up with the prices people actually pay.
- The price of bonds should be much lower if interest rates fully accounted for the rise of inflation based on the Big Mac.
- The official economic growth rate would be lower now if prices were based on the Big Mac Index.
[Bottom line:] investors are being penalized (mostly without their knowledge) with higher inflation, lower income from bonds and certificates of deposit and being led to believe that the economy is growing better than it really is….
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*http://advisorperspectives.com/dshort/guest/James-Cornehlsen-121217-Big-Mac-Inflation-Risk.php
MuckAbout says:
Well, this just about agrees with my “Subway Club” index posted the other day, except my Subway Club cost went up from $4.99 to $7.00 in one year. That’s a 40% increase in a lousy year.
Bye, bye Subway – I’ll bake my own bread, grow my own lettuce and tomatoes and fuck your $7.00 sandwich.
MA
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2nd February 2013 at 2:36 pm
Avalon says:
You can buy a delicious 8oz burger made with real ground beef at the local restaurant I work, and fries, for about $8- about the same as a Big Mac and fries at McDs. I dont understand why more people choose McDs. Faster, i guess….
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2nd February 2013 at 6:28 pm
Administrator says:
Why so cheap, Avalon? Inquiring minds want to know.
Burger King Admits to Horsemeat in Whoppers, Burgers
Burger King admitted just a few hours ago that the samples did in fact contain horsemeat:
“Four samples recently taken from the Silvercrest plant have shown the presence of very small trace levels of equine DNA… we have established that Silvercrest used a small percentage of beef imported from a non-approved supplier in Poland. This is a clear violation of our specifications, and we have terminated our relationship with them.”
Read more: http://naturalsociety.com/burger-king-admits-burgers-contain-horsemeat/#ixzz2Jmvc8TlO
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2nd February 2013 at 6:40 pm
Administrator says:
What’s Inside a McDonald’s McRib Sandwich?
But what’s really inside the McRib specifically that makes it such a food abomination? Containing over 70 ingredients, the McRib is full of surprises — including ‘restructured meat’ technology that includes traditionally-discarded animal parts brought together to create a rib-like substance. Here’s some of the disturbing substances found within the McDonald’s McRib sandwich:
A flour-bleaching agent used in yoga mats
Out of the 70 ingredients that make up the ‘pork’ sandwich, a little-known flour-bleaching agent known as azodicarbonamide lies among them. At first glance, this strange ingredient sounds concerning enough to look into. After a little research, you will find that even mainstream media outlets have generated content revealing how azodicarbonamide is actually used in the production of foamed plastics. Foamed plastics like yoga mats and more.
What’s more? In Australia and Europe, the use of azodicarbonamide as a food additive is banned. In Singapore specifically, use of this substance in food can result in a $450,000 fine and 15 years in jail. Thank you McDonald’s for supplying the nation with such healthful ingredients.
‘Restructured Meat’ from Pig Heart, Tongue, Stomach
McDonald’s McRib is famous in some circles for utilizing what’s known as ‘restructured meat’ technology. Since McDonald’s knows you’d never eat a pig heart, tongue, or stomach on your plate, they decided instead to grind up these ingredients and put them into the form of a typical rib. That way, consumers won’t know what they’re putting into their mouths. As the Chicago Mag reported, the innovator of this technology back in 1995 said it best:
“Most people would be extremely unhappy if they were served heart or tongue on a plate… but flaked into a restructured product it loses its identity.Such products as tripe, heart, and scalded stomachs…”
So in other words, it’s not actually a rib. Instead, it’s a combination of unwanted animal scraps processed down in major facilities and ‘restructured’ into the form of a rib. Then, 70 additives, chemicals, fillers, and GMO ingredients later, you have a ‘meat’ product that tastes like ribs.
Read more: http://naturalsociety.com/mcdonalds-mcrib-sandwich-a-franken-creation-of-gmos-toxic-ingredients-banned-ingredients/#ixzz2JmwCDKcP
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2nd February 2013 at 6:42 pm
Administrator says:
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2nd February 2013 at 6:43 pm
Administrator says:
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2nd February 2013 at 6:47 pm
Eddie says:
“Manufactured food” like the McRib is an abomination in the sight of the Lord, imho.
The worst part is that all the recombinant parts contain meat from many different sources, greatly increasing the chances of getting something like E Coli. I’m surprised they don’t kill a lot more people. I guess with enough radiation, you can kill anything that grows on meat.
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2nd February 2013 at 6:57 pm
Novista says:
I’m sure the McRib is a HZK favorite.
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2nd February 2013 at 8:23 pm
Bruce says:
Sounds kinda like all the pig parts less the chemicals that we mashed up on the farm to make scrapple. I love scrapple.
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2nd February 2013 at 2:00 am
ecliptix543 says:
I now feel even better having NEVER eaten one of those nasty fucking things. If I can’t determine what part of what animal it’s made of from a distance of five feet, I’m not eating it.
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2nd February 2013 at 5:27 am
Mark says:
The CPI is not a lie. It’s a reflection of why it’s a meaningless statistic. You can’t measure inflation by weighting because you can’t determine group preferences at any given point in time. (some people buy Yachts and others can’t afford them)
One thing is for certain when you try to put all goods in a weighted basket. Those on The lowest rung of Maslow’s Hierarchy of Needs will rise more in price then those on the top rung.
Especially, during our hard wired brains during times of draughts or bad harvests. (recessions also impact wealthy preferences)
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2nd February 2013 at 8:53 am
ecliptix543 says:
Seems like Mark managed to stay awake for the first few weeks of Intro to Psych. Please do regale us with more of your wisdom.
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2nd February 2013 at 9:24 am
JIMSKI says:
For the price of a big mac you can get a pound of kielbasa the way it was meant to be.
http://www.stanleysmarket.com
Your welcome
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2nd February 2013 at 11:20 am
nonner says:
mcrib is to philly cheese as fiddy cent is to mclean
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2nd February 2013 at 12:00 am