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In the U.S. you can buy TIPS--Treasury Inflation-Protected Securities--if you're worried about inflation. So many people are jumping into them, though, that the rates are horrible...

Millions of Americans are rushing into these securities to protect against rising prices. But this stampede has sent yields plunging to record lows. Today these bonds offer a poor long-term bet. TIPS, issued by Uncle Sam, are safe from default and guarantee a certain annual yield above the official inflation rate. So if inflation rises, the yield rises in lockstep.

http://online.wsj.com/article/SB120441379580905695.html?mod=googlenews_wsj
by asdf on Mon Mar 3rd, 2008 at 08:46:46 AM EST
You probably know that under Clinton the definition of the CPI was completely changed?

Some examples from ftd:
Cars, an international tradable goog, have become 6% cheaper between 1996 and now in the US according to the official CPI. In the Euro area in the same time cars have become 14% more expansive. Do you think the Dollar has rocketed in that time against the Euozone currencies? Anyhow this will only be adjusted for core inflation, which not includes e.g. oil and food prices and house renting has become 43% more expansive in that time (according to CPI), while the Shiller index increased 160%.

The trick is e.g. the hedonistic CPI calculation in the US. If a computer doubles its price, but has double the memory and processor capacity, in the US it counts as no inflation. In Europe a computer is a computer. For cars probably kW or whatsoever is used to determine the 'hedonistic use'.
Another trick is geometric CPI calculation. Let's say you have big cars and small cars and initially you both are bought to 50%. So now big cars become more expensive, but small cars don't because e.g. a Tata motors introduces a new cheaper car in the market. Then the US CPI calculation says, Ok as you can substitute aone type of car with another type of a car, likely more people will buy now small cars instead of big cars and you end up e.g. with only 35% buyers of a big car for the CPI calculation, for sure a Porsche driver won't care that he now drives a Tata. Or e.g. with more people eating the 1$ Burger instead of the steak.

If you want your money secured with something closer to what you would accept as CPI, you should buy inflation protected bonds denominated in Euro with the ECB inflation measure.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Mar 3rd, 2008 at 09:31:36 AM EST
[ Parent ]
Buy eurobonds or something instead. Eh...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Mar 3rd, 2008 at 06:06:34 PM EST
[ Parent ]
If one has a special reason to have inflation adjusted bonds, one should take inflation adjusted bonds, they exist in the Euro area as well.
If there is no special reason for inflation adjustment, one can as well buy US Muni bonds, they are as well very safe and have a higher return. There is no guarantee that there will be a high inflation in the future, although it can happen. Some serious economists think deflation could be as well a problem.
The diary is actually incorrect when it states, that the ECB has flooded the marked with extral liquidity. At the same time when lending out worth about half a trillion dollars, it was borrowing back from the market a very similar sum. The ECB did not introduce new liquidity. The Fed didn't as well. The reason was that the interbank lending rates were much above what they were targeted by the ECB. So in the (correct) assumption, that none of the banks to which it was lending will go bankrupt during the time it lends, the ECB only revived the interbank lending, which stopped, because the banks lost confidence into each other.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Mon Mar 3rd, 2008 at 06:32:37 PM EST
[ Parent ]
The rates are horrible, or not, depending on your inflation forecast.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Wed Mar 5th, 2008 at 06:43:53 AM EST
[ Parent ]

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