TIPS: A Case of the Fox Guarding the Hen House?

Here's the first sentence of Sandra Hernandez' Bloomberg report:

Treasury Inflation Protected Securities aren't living up to their name for bond investors who say they can't trust the way the U.S. government calculates the rising cost of consumer goods.

I have to give a guy credit -- I saw none other than Jim Rogers point this conflict out on CNBC when TIPS were first announced back in the 1990s. This certainly makes the case for fighting inflation by diversifying across commodities, or at least gold, though I repeatedly remind you that I'm no player in gold or commodities.

Anyway, inflation is something for all of us to be aware of as long as governments continue debasing their currencies.

Comments

[Tzvika]

The flipside of this is that in the grand scheme of things, the more people buy TIPS, the more vested interest the government will have NOT to debase the currency. So from a macroeconomic point of view, TIPS are excellent (regardless of whether or not the CPI understates inflation, which of course it does).

[John]

Tzvika: Then let's say that if the government understates inflation, TIPS are bad for those investing in them. Maybe your point about the government now having an interest in not debasing the currency is correct, but I think over the long term the government is sure to to just that, unfortunately.