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Treasury Fudges Numbers??

Bruce Krasting's picture


The Treasury Department’s Dr. Janice "Jan"  Eberly put together a deck of slides describing the state of the US economy. (Link) This is an impressive presentation with charts on many key economic variables. You can’t blame the good Doctor for putting a spin on her presentation. After all, this is an election year, so putting lipstick on a pig is to be expected.



There was one slide that caught my eye. It was in a section labeled:



As “evidence” that the US is on the right fiscal footing, the Treasury provided this chart on inflation expectations:


Short and long term inflation expectations are just 1.5% according to this impressive presentation. I think the chart is wrong.
The Treasury Department does not tell us where it got the information supporting the claim that inflation expectations are so low. The only place I know to look for a market-based forecast on future inflation is the TIPs versus coupon spread. Possibly the Treasury has some other source.  Bloomberg tracks the implied inflation outlook that is derived from market data. This is the Bloomberg methodology:

This is pretty simple stuff. Take one number, the prevailing yield on ten-year Treasury bonds, and subtract the yield on the TIPS and presto, we have a future inflation forecast.

10-year minus Tips = Inflation Expectation (IE)


The yields on the respective bonds were as follows as of the close on Friday:

Ten-Year Bond = 1.88%
Ten-Year TIP = -.34%

So the arithmetic is 1.88% minus .34% to produce a forecast of 1.54% for future inflation, right?


The correct calculation is:

1.88 – (-.34) = IE
1.88 + .34 = 2.22%
(Subtracting a negative number is the same adding a positive.)

This is the Bloomberg chart for inflation expectations based on the TIPS/Coupon spread. Note that the spread closed at 2.22 on Friday:



The next chart overlays the Treasury IE calculation with that provided by Bloomberg. The Treasury chart consistently understates the actual market results for the entire period.


I contacted the Treasury and asked for a clarification. I think the nice folks at Treasury are pretty busy coming up with happy charts, so they didn’t bother to respond to my request. There are few possible explanations for the discrepancy in the information provided by Dr. Eberly and her crew:

-Treasury has some unknown (and undisclosed) source of information that yields a significantly different view on inflation expectations than the market. (I doubt it).

-Treasury made a mistake in the calculation for Implied Inflation. They did the math wrong. (A distinct possibility.)

-Treasury is making stuff up.

The report by Treasury was widely read. It was favorably referenced in a number of E-Mags. This article at Business Insider includes the words “the True State of the Economy” in its title:


BI reviewed the information from the Treasury and concluded:

"All in all, it's a very useful presentation."

Maybe the folks at BI assumed that the information from the Treasury, had to be right. But it wasn’t. My guess is that a few million people looked at the data from Treasury, and a good chunk of them were left with the conclusion, “Things are getting better, all the signs look good”. That would be the conclusion that the Treasury was trying to elicit.

I’m left wondering. Either Treasury bungled the calculation for Inflation Expectations, or they fudged it. That being the case, what credibility is there for the rest of the information?



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Mon, 05/07/2012 - 00:17 | 2402523 OC Money Man
OC Money Man's picture

I strongly agree with Bruce's analysis, but with a slight addition.  Any QE from the U.S. would also be seen as a back door bailout of Europe.  Euopean prime dealers' U.S. subsidiaries slurpped up most of the liquidity from QE3 and wired the money to headquarters.  This repatrianization activity explains one of the major reasons the euro has been strong.  


Sun, 05/06/2012 - 09:58 | 2400575 MFL8240
MFL8240's picture

The con show from Weimar to the US without skipping a beat! Same pedigre, differnt country!!

Sun, 05/06/2012 - 12:13 | 2400752 masterinchancery
masterinchancery's picture

Politicians lie, pretty much all the time, and so do their flunkies, who want to keep their highly paid jobs with great benefits.  Great article Bruce!

Sun, 05/06/2012 - 01:12 | 2400367 piceridu
piceridu's picture

BK, thanks for posting stuff like this. Most of us would never come across this bullshit without you pointing it out...thanks again

Sun, 05/06/2012 - 00:53 | 2400355 Body of Lies
Body of Lies's picture


I has two TIPs for you:

1) Don't believe their entire Body of Lies

2) If you must buy goberment bonds do it in 1981

This lady Ms. Eberly ... she looks like my 2nd grade teacher ... and now she telling me that I'm just fine and that everything will work out ok .... and I feel so warm and fuzzy; thanks Ms. "Jan"

Sat, 05/05/2012 - 22:58 | 2400285 Precious
Precious's picture

Eureka.  An academic figures out the the fed might be lying.

Just imagine what we can expect them to discover by 2030.

Sat, 05/05/2012 - 22:51 | 2400273 Yancey Ward
Yancey Ward's picture

<blockquote>Possibly the Treasury has some other source.</blockquote>

David Axelrod.

Sat, 05/05/2012 - 20:45 | 2400143 JeffB
JeffB's picture

How reliable could those numbers be? How subject to manipulation are they?

The Treasury and the Fed control both the supply and the demand for both the TIPS and the regular treasuries.

If they want to lower the price of the regular treasuries relative to TIPS they can shift more of the supply from the former to the latter. Or the Fed could buy more of the regular and fewer of the TIPS.

They can manipulate the spread as easily as they can manipulate the slope on the yield curve.

Not that they would want to, of course. Why would the government, as servant of the people want to decieve them? That would be immoral in the extreme.

Even so, I think a lot of people must think that even 2.2% inflation long term seems quite low given a debt that could never be repaid without printing far more money. The increase in our total debt was in excess of 70% of our total federal revenues in 2010. It may have been a bit less in 2011, but it was still far above sustainable levels and the 1st of our baby boomer generation hit age 65 at the end of last year.

We're already printing money at an unprecedented level as seen in this Federal Reserve chart of the monetary base:


Sat, 05/05/2012 - 20:20 | 2400135 mailll
mailll's picture

One thing Lindsey Williams said one time that caught my attention was that the Elite provided easy credit to all, allowing the government to increase their revenue, thus allowing them to keep spending on new programs, and then crashing the economy.  The purpose of this was so the Elite could create massive debt in government.  The economy crashed but they still had all them new programs to pay for.  So where did the money come from to pay for these programs, since the economy didn't provide the money any more? Government borrowing.  Borrowing in the trillions every year.  My opinion on this is that the government doesn't believe that they need to be concerned about continuing this deficit spending because the interest rates on borrowing are so low.   Imagine if this relatively free money is cut off.  What happens to our government?  I believe that just as the Elite pulled the plug on easy credit in order to crash our economy, they will eventually pull the plug on easy credit to our government, thus collapsing our government and our economy catastrophically.  If these conspiracy theories are correct, this is how they will do it.  And the world economies will follow.  And just for good measure, the plunge protection team will get layed off, thus crashing the stock market also.

Sat, 05/05/2012 - 22:07 | 2400235 JeffB
JeffB's picture

If the conspiracy theories are correct, this is the endgame. They already have enough of the devoloped world by the balls with virtually nothing they can do to escape. The U.S., Europe and Japan are already in over their heads and seem to be doing everything they can to make things worse yet.

Even if it's all due to utter stupidity, we're all still in a heap of doo doo. As you say, we're only able to keep some semblance of solvency because interest rates are so low. But they're only that low because they're artificially held there. That can't go on forever. The easy money will eventually fuel inflation and no one will loan money to governments at such low rates when inflation rears its ugly head. Well at least not enough to fund these kinds of deficits.

So we're in an impossible situation. We can't really cut back on spending much as our country and world economy are teetering on the edge of recession/depression/economic implosion. The Fed can't really tighten money for the same reasons. But both of those are fueling misallocation of capital in the here and now as we continue on in an unsustainable fashion. Making things easier in the short term is going to make them far worse when that can just can't be kicked any darn farther. We're coming up on the edge of a cliff. Who knows how far ahead that is, however.

If the conspiracy theories are correct, I guess it's more a matter of when they think the time is ripe to pull the trigger.


Sun, 05/06/2012 - 10:30 | 2400624 SilverIsKing
SilverIsKing's picture

"if the conspiracy theories are correct?"

What does that mean?

Facts are facts. When does a theory of any type change a fact?

Mon, 05/07/2012 - 14:47 | 2404266 JeffB
JeffB's picture

So you're of the opinion that the term "conspiracy theories", at least in this case is a misnomer as it is no longer a theory but a proven fact?


Tue, 05/08/2012 - 00:34 | 2405554 SilverIsKing
SilverIsKing's picture

It is a proven fact that we are fucked. That is not a conspiracy theory. It's a mathematical certainty. Is that what you mean?

Tue, 05/08/2012 - 13:18 | 2406891 JeffB
JeffB's picture

I completely agree, and while I don't quite consider it to be an "observable fact" that everyone can agree on, I think it's obvious enough to those who can look at the facts objectively, that it's pretty easily deducible.

What I meant in my earlier post was that there is still some question in my mind about the root cause of how we got here. I see two possible scenarios:

1. The conspiracy theory -- Evil plotters have planned and carried out this worldwide economic collapse.

2. Politicians and those electing them, at least in the democracies, have been too short sighted and stupid to realize that their actions would result in this unsustainable bubble economy that would necessarily collapse.

From your reply, it sounded to me like you were saying that it was clearly option #1.

That wouldn't surprise me, and there seems to be some evidence that that may be the case, or at least that some may be trying to help things along in that direction, but I haven't seen any evidence that so convinces me that I completely throw out the possibility that it may be #2.

I was just checking to see if you might have some good conspiracy links or observations for me.


Sat, 05/05/2012 - 20:12 | 2400127 onlooker
onlooker's picture


This is one of your best articles Bruce. Really professional, points easy to grasp, excellent graphics, important message.

Sat, 05/05/2012 - 18:24 | 2399999 besnook
besnook's picture

considering the usda just categorized ipads as protein her inflation number is correct.

Sat, 05/05/2012 - 23:19 | 2400297 cynicalskeptic
cynicalskeptic's picture

Shadowstats has inflation at 6%.........   seems higher given what I'm seeing in the gorcery store.   Smaller sizes AND higher prices.....   and I won't go into the increase in local property taxes......

Sun, 05/06/2012 - 10:12 | 2400591 The Alarmist
The Alarmist's picture

I just saw a can of Spam retailing at $4.29 ... granted this was in Manhattan (people in Manhattan eat Spam???), but it is up considerably over the past couple of years.

Sat, 05/05/2012 - 22:40 | 2400262 mickeyman
mickeyman's picture

Isn't there melamine in the case?

Sat, 05/05/2012 - 19:28 | 2400075 smb12321
smb12321's picture

You think that's hilarious?  In the real world the government treats the new IPAD as a REDUCTION in inflation because it "does more".  In other words, a toy costing $549 actually computes less than one for $499.   Bureaucratese 101

Sat, 05/05/2012 - 18:22 | 2399996 XitSam
XitSam's picture

"Investors remain confident that the U.S. Government will meet its real financial obligations..."

Real financial obligations? As opposed to ... imaginary financial obligations? Or does real not include entitlements like Medicare (because it is subsumed into Obamacare and Obamacare will save us FRNs, because the Dems said so) or Social Security?

Why would she even include this slide unless people were saying the US will default either by inflation or outright default? Oh, maybe the credit downgrades? But as Timmy said (twice), "No chance of that." 

Sat, 05/05/2012 - 19:31 | 2400077 smb12321
smb12321's picture

I do not know a single private financial manager (and I know several) who thinks for a millisecond that things will improve with this crew in charge (or not in charge as the case may be).  Even those appearing on CNBC are sounding wary of this endless tooling, adjusting, mandates and tricks. 

You have to understand that she is talking to folks who actually believe that massive spending and debt is the key to prosperity. 

Sat, 05/05/2012 - 18:18 | 2399989 Paul the Great
Paul the Great's picture

The lying bastards make the pruchase of TIPS to protect agianst future inflation a joke.

You will only collect what that want to pay you regardless of the true inflation rate... if they end up paying you at all.

Sat, 05/05/2012 - 16:55 | 2399836 Escapeclaws
Escapeclaws's picture

She probably used Turbotax to do her calculations. Seems to be the software of choice at Treasury.

Sat, 05/05/2012 - 16:03 | 2399755 scragbaker a ca...
scragbaker a cape cod clamdigger's picture


Sat, 05/05/2012 - 15:39 | 2399720 wonderatitall
wonderatitall's picture

business insider?  obama lying machine insider more likely....bus insider works directly with whatever propaganda the obama fascist regime wants....obama2012,why?  race war and vacations baby


Sat, 05/05/2012 - 15:37 | 2399716 q99x2
q99x2's picture

It was an omen on ZH. I say Michele Obama was on the left asks, "Are You In?" In the middle appeared the name Jan Eberly. Then on the right Barak and the words "You're affair is covered. Dinner with Barak." Dinner with Barak. Gaddafi had dinner with Barak. Somebody call that lady and tell her she better not have dinner with Barak.

Sat, 05/05/2012 - 15:30 | 2399707 John_Coltrane
John_Coltrane's picture

This administration has a problem with negative numbers, whether they be job "growth" (labor participation is shrinking, so its negative), economic expansion via GDP (they use the wrong deflator (wrong inflation factor) to make it seems positive when its just all inflation, much like retail sales numbers) and now their inability to subtrate two numbers correctly when one is negative (they really are likely that stupid).  Certainly math challenged.  Their strength is the "fairness" doctrine, which is of course, non-quantifiable.  But its a zero sum game isn't it, one persons fairness is anothers (the counterparty) idea of unfairness.  Just like in any trade.

Nice article as always, Bruce.

Sat, 05/05/2012 - 15:24 | 2399697 TooBearish
TooBearish's picture

And the FED has monetized how many TIPs, possibly biasing their yield? - haaaahaaa love the effort Bruce!

Sun, 05/06/2012 - 09:53 | 2400571 Bruce Krasting
Bruce Krasting's picture

I agree that the market spread is not a valid forecast of inflation. But many people do look at it and use it to make a case. Bernanke used to do it, but he no longer does.

So when Treasury comes up with (bogus) numbers to support their cause, I feel I gotta weigh in.

Sun, 05/06/2012 - 10:09 | 2400588 The Alarmist
The Alarmist's picture

This has been a known problem in the UK bond market for years, where the spreads between Gilts and Index-linked gilts have been markedly distorted (try 50 to 75bp) due to supply-demand issues, and despite common knowledge in a number of corners, a number of "serious" professionals (e.g. actuaries valuing pensions) try to run with the party line that the spread equals inflation. Given the tremendous distortions in the US markets the last couple of years, it is safe to say that this methodology is manure.

Sat, 05/05/2012 - 16:46 | 2399823 donsluck
donsluck's picture

Very true Bear. There is very little useful information available by analyzing a data set under manipulation by it's creator. To get an accurate view of inflation, there is always Shadow Statiscs. Don't be lazy, look it up.

Sat, 05/05/2012 - 15:08 | 2399671 kevinearick
kevinearick's picture

The media spent two weeks, wall to wall, idolizing Steve Jobs, who was a psycho, pathological liar. Their foundation is always built on lies which is why it always collapses. Whether you wish to provide the herd with green shoots is always up to you. The prison is psychological, but quite effective.

Sat, 05/05/2012 - 15:08 | 2399667 the grateful un...
the grateful unemployed's picture

it all depends if you think the TIP auction is being bid to premium because of the markets perception of higher inflation expectation, or you think the Fed/UST is buying its own supply to tamp down yields, (probably a little of both). i am sure they hate, HATE IT!!! when they have to make up the difference on a TIP security in order to sell it at par. and to be scholarly about this you should go back and look at the history of the auctions, where the TIP was priced and what the ACTUAL rate of inflation turned out to be.

pretty sure Obama/Romney buy into the policy of protecting asset prices against deflation, and oil is an asset class before its a consumer product, if you need to make the distinction. they both do, and they have. energy is a commodity asset first, protect the energy companies. maybe in his second term Obama will introduce mandatory energy insurance, so none of you poor saps freeze to death next winter

both candidate assume the china offset will continue to hide their bailout of wall street assets. clearly the manchurian presidency never ended. inflation will go up WITHOUT any supply demand problems once the china offset is cancelled.

Sat, 05/05/2012 - 14:55 | 2399651 ebworthen
ebworthen's picture

"System Failure" is right.

PhD = Piled Higher and Deeper.

I'm not surprised that the right arm of FED debauchery of the currency and economy is blowing smoke; after all it is the job of a CONfidnce racket to quote the miracle cures of the snake oil.

Sat, 05/05/2012 - 15:09 | 2399669 sessinpo
sessinpo's picture

ebworthen                   2399651

PhD = Piled Higher and Deeper.



I love the change in acronym for PhD.

One of my favorites I coined. PhD - Profoundly Hubritically Deceived

As we regularly come across, it is quite often PhD's that are miseducating and making governmental policy decisions that are destroying America. And it leaks into the private sector as well. I'm sure we all remember LTCM. Any way, I view some of them as profound with hubris to the point they deceive themselves as well as the public that follows them.

Sat, 05/05/2012 - 14:40 | 2399626 Nobody For President
Nobody For President's picture

A credilble government economic presentation has GOT to be the muther of all oxymorons.

Sat, 05/05/2012 - 14:23 | 2399592 Crab Cake
Crab Cake's picture

Credibility from the federal mafia, not likely. All they do is lie.

At this point I dont even consider myself a citizen. To be that I would have to be, you know, actually represented. This government has broken with its compact with the people. Revolution is now well within our right. If these fools think Im going to march in the streets demanding change and making myself a target they are idiots. No, when I move it will bloody, personal, and anonymous. These criminals live in undefended communities right next to all of us, and they think they hold all the cards; they dont.

Im warning these domestic conspirators who have broken their oaths, and trashed the nation that my family has fought for for generations, right now... You have no idea what box of hell you are opening; quit and do it soon.

Sat, 05/05/2012 - 18:12 | 2399927 takinthehighway
takinthehighway's picture

Bravo, friend Crab!

Take comfort in the knowledge that you are not alone; there are thousands upon thousands of us in the same position as yourself. Depending on which part of the US you're in, you may want to give this a looksee: I don't belong and don't necessarily agree with everything they espouse; however, it never hurts to know where you might find friends in time of need...

Sat, 05/05/2012 - 16:40 | 2399814 donsluck
donsluck's picture

Too late Mr. Cake, NDAA was passed and is now law. The US Government has declared war on it's citizens. We are all now guilty, automatically.

Sat, 05/05/2012 - 14:21 | 2399586 akak
akak's picture

Bruce, I bet ZeroHedge's own Robert "Rubber Balls" Bruschetta would take issue with your impugnment of the US Treasury's economic propaganda, er, I mean spin, um, I mean numbers.

Sat, 05/05/2012 - 16:46 | 2399824 Imminent Crucible
Imminent Crucible's picture

If the populace really expects just 1.5% annual inflation, Bernocchio would not be at George Washington University giving the undergraduates lectures on "Why a Gold-Backed Currency is a Really, Really Bad Idea That Won't Solve Any of Our Problems, Or At Least None That The Fed Cares About".

The Fed knows that the sheeple are smelling inflation in every hot gust of wind from DC and the Marriner Eccles building. They're trying to jawbone their way out of this because jobs and the economy just suck, and they have no choice but to QuantEase the hell out of the U.S. dollar.

Sat, 05/05/2012 - 14:00 | 2399553 FeralSerf
FeralSerf's picture

Treasury fudges numbers??  Who'd a thunk it!  With Treasury Secretaries like Geithner, Paulson, and the Snow Job, how could one ever think there's a crediblilty problem at Treasury?

Sat, 05/05/2012 - 13:57 | 2399546 rebelscum1967
rebelscum1967's picture

Timmay! What a f'king weasel. In the post-apopalyptic world he will be digging latrenes. 

Sat, 05/05/2012 - 18:16 | 2399985 El Oregonian
El Oregonian's picture

No, more like using Timmay's open mouth as a toilet seat to fill that "bas-turd" a stomach full of brownie rolls inside that latrine...

Sat, 05/05/2012 - 13:53 | 2399530 bank guy in Brussels
bank guy in Brussels's picture

Bruce Krasting writes above:

« I contacted the Treasury and asked for a clarification.... »

Indeed I can imagine the conversation at Treasury when Bruce calls them ...

1st Treasury guy - 'Who's calling?'

2nd Treasury guy - 'That blogger Bruce Krasting from ZeroHedge, the Swiss guy who lives north of New York city ... He says our f-ckin' numbers are wrong.'

1st Treasury guy - 'Krasting? He's a pain, he's on the sh*t list for the FEMA camp when we get rolling. Ignore him.'

Sat, 05/05/2012 - 13:50 | 2399528 Bansters-in-my-...
Bansters-in-my- feces's picture

Inflation expectations 1.5%   ...????

Fucfk Off you lying skanky bitch.

And thats me being nice.

Sun, 05/06/2012 - 11:06 | 2400687 RafterManFMJ
RafterManFMJ's picture

1.5% sounds about right. I, like many, have substituted sawdust for hamburger, and a warm car on blocks for renting.
