2010 Ultraman Endurance Race Kona, Hawaii

The 2010 Ultraman  endurance event started this morning off of  Kona Pier at 6:30AM. The event is a 3-day, 320-mile (515-kilometer)  race held annually over  Thanksgiving weekend. Thirty-five athletes from around the world are participating his year..  

The event began with a 6.2-mile (10 km) ocean swim from Kailua Bay to Keauhou Bay, followed by a 90-mile (145 km)  bike ride from Keauhou Bay around the southern tip of the island via Route 11 to finish at Namakani Paio Park in the Volcanoes National Park.  Tomorrow the racers have a  171.4-mi (276 km) bike ride, from Volcanoes National Park (Route 11) to Keaau, then a  loop through Kalapana, Kapoho and Pahoa, and on through Hilo. From Hilo, the bikers will go north along the Hamakua Coast (Route 19) to Waimea, and over the Kohala Mountains via Route 250 to finish at the Kohala Village Inn on Hawi Road.  The last day the Ultramen will do a 52.4-mile (84 km) double-marathon run from Hawi to Kona (via Route 19) and finish on the beach at the Old Airport State Park.

Look for bikers and runners in the next two days as the Ultraman race around the Big Island.

French Beaujolais Nouveau in Kona, Hawaii

We have been looking for the 2010 French Beaujolais Nouveau in Kona, Hawaii to fulfill our Thanksgiving wish.  Nouveau wine is made from grapes picked this Autumn and is sought by those who want to get an early taste of the year’s wine before it has fully matured. This “almost wine” is bottled in France and shipped around the world on the third Thursday of November, just in time for Thanksgiving.

Unlike regular wine, Nouveau does not get better with age and spoils quickly if not consumed. Wine merchants worry if they carry it and it does not sell quickly it will spoil and they will be out the cost of the wine.

Fortunately for us, the wonderful people at the Kona Wine Market in the Kona Commons Shopping Center, were willing to order a case of Georges Duboeuf Beaujolais Nouveau wine. They still have some bottles left for anyone looking for the Nouveau and others that want a taste of the future.

If you don’t want to buy a whole bottle, some of the top restaurants on the Kohala coast are serving it by the glass.

Will the Fed’s $600 billion cause hyperinflation?

Many think  that the Federal Reserve’s sudden creation of $600 billion will cause hyper-inflation.  However, when calculating the relative “inflationary” value of the new $600 billion compared to the huge dollar value that was created by the housing bubble, the Fed’s amount is very small in comparison.

Here’s the calculation:

Using census data one can make some ballpark calculations of the effective size of the liquidity created by the housing bubble.  Eighty million single family homes exist in the US and had an average value of $171K in 1997.  In 2007 the average value had gone up to $310K. This increase in value in 10 years meant an average increase of $13.9K per year for every house . That translates to an increase in total house values  (detached single family houses only) from $13.6 trillion in 1997 to $24.8 trillion in 2007. This represented an increase of $11.2 trillion dollars over 10 years.  And since it was easy to sell a house during most of that time or get a second mortgage on a house, this $11.2 trillion was largely available for people to spend.

Since 2007,  housing experts have estimated that housing prices nationally have fallen about 25% from their peak in 2007. That drop represents a  functional drop in liquidity of $6.2 trillion dollars in three years which is over 10 times the amount of the Federal Reserve’s instant $600 billion injection. And with the new higher lending standards and many people (as many as 50% in some States) underwater on their mortgages , the trend looks like it will continue to be strongly deflationary.  

If the instant currency creation by The Federal Reserve becomes routine, then the people claiming hyper inflation is coming will ultimately be right. If it is a onetime event, the $600 billion is not enough to ignite hyper-inflation by itself.

Calculating inflation

For decades, the US government has published their calculations of annual increases in inflation. These calculations have been very controversial since many economists claim that changes in the calculation over the years understate the real inflation that has been taking place. Though the government strongly defends their inflation statistics, the figure is meaningless without direct comparison of the cost of the same product from one time period to another.

The price of beef is one example of how the government has kept inflation numbers low.  In past inflation calculations beef steak prices were compared, but one year steak was suddenly replaced with  ground beef driving the inflation number for beef much lower. The price of steak in 1972 and the price of ground beef in 1984  hardly seems comparable and yet government economists insist their calculation is valid . Substituting lower quality  products in the inflation calculation has also resulted in an understatement of the true rate of inflation over the past three decades.

Though some of the substitutions are obvious like steak and ground beef, many are more subtle though every bit as substantial. Kitchen appliances for instance, are not comparable. A coffee maker with a timer and a carafe manufactured in America in 1990 cost about $110.  In 2002 you could buy two for that price making it appear that the cost had dropped by 50%. However, the difference in the quality of the 1990 product, tested by UL for safety and able to last 10 years is not comparable to the cheaper coffee pot manufactured by underpaid workers in Asia with minimal testing.  The price of children’s toys painted with lead and food products laced with melamine are being compared to the price of higher quality products we use to make in the US as though these products are equivalent.  

The US government’s official figure for inflation, or Consumer Price Index (CPI), is 260% between 1980 and 2010.  In other words, $1,000 in 1980 had the same buying power as $2,600 in 2010. But the reality is that $2,600 today has nowhere near the buying power of $1,000 in 1980.  One only has to look at the components of the American dream to gain a picture of the how out of reach the dream has now become.

House: In 1980 the average house cost $68,000. Using the US government consumer price index, an average U.S. house today should cost $176,800. Yet even after the crashing of housing prices over the past 3 years, the average house price is still $235,000.   So, the inflation in housing prices is actually 345%, not the CPI figure of 260%  which means the government is understating inflation by 85%.

Car: In 1980, the average price of new car was $7210, but in 2010, the average new car is $28,400.   According to the US inflation index, a car price on average should be $18,746, yet the actual price is 393% higher. The government is understating the inflation in new car prices by 133%.

College for our Kids: In 1980,  the average cost to attend a public college was $2373 a year for tuition, fees, room, and board and the average cost of a private college was $5470.  Now the cost for a public college has swollen to $20,000 a year and private colleges to $39,000 a year.  This is a cost increase of 843% for public colleges and 713% for private colleges. Government numbers are understating the inflation in college costs by 583% for public college and 453% for private colleges.

Health Care: In 1980, the average person spent $1072 a year on health care expenditures, but in 2008 the average person spent $7681 a year, an increase of 716%. The inflation of health care is being understated by over 456%.

Though inflation is being understated by 85-500% for the basics of American life, those that have been able to retain their jobs have not seen matching increases in wages.  In 1980, the average worker’s wage was $12,513.  In 2009, the average wage was $39,054 and using the US government inflation rate of 260%, the average wage today should be $32,500.  The small increase of $6,554 over the inflation index, or 20%, does not compensate for the dramatic increase over the published inflation numbers of everything else.

Seeing the inflated prices of houses, cars, college, health care, and the decreasing quality in products and foods helps us to understand why we , like so many other Americans, are struggling to gain the American dream of health, wealth and happiness.