Posted on 12/08/2007 4:41:18 PM PST by shrinkermd
Or it *doesn’t*
Exact answers are rare with you.
For another good measure, just ask yourself what your pocket change is worth. Frankly, the only coin with any real value left in it is the quarter. And it is worth what 2 cents was worth when I was a kid in the late 50s. A dime in the late 50s is about the same as a dollar bill today. It’s amazing what “benign” inflation of 4% to 5% over 50 years will do.
Know what you mean. It is tough just to stoop to pick a one dollar bill these days!
We eggheads distinguish asset prices, to include the prices of undeveloped land, income-producing real estate and residential real estate, along with financial assets such as stocks and bonds, along with gold; from the prices of consumer goods and services.
There is good reason for this, although there are also some problems that result.
Let’s say you are the prototype worker bee, and never actually buy anything, but just live hand to mouth, from one paycheck to another. Then, your concern with inflation is how much does your paycheck have to go up in order to for you to pay for the goods and services that you consume, such as food, beer, cigarettes, lottery tickets, and so forth, as well as rent an apartment (probably on a month to month basis).
(We’ll ignore the tiny little fact that even these hand-to-mouth’ers acquire consumer durables, such as automobiles, furniture and appliances, and we’ll just treat these acquistions as though they were no different from purchases of non-durable consumer goods.)
This is actually what is built into the consumer price index.
Well, what about people who aren’t hand-to-mouth worker bees. People who, for example, acquire their homes using amortized mortgage loans?
The argument is that, in equilibrium, rent of residences will equal the all-in cost of “buying” them with a mortgage (if we recognize the repayment of principal as a form of saving) of equivalent living spaces.
Is this actually true, that’s the (pre-inflation) $64,000 question.
The answer is ... yes ... but only in equilibrium, or we can say, “in the long-run.” During a price bubble in housing, the cost of acquiring homes will become loosed from its fundamental value. Egg-heads will say, ohmygosh, I don’t think this run-up in prices can be sustained. But, speculators will go on buying homes on the “greater fool” theory of investing, hoping that they won’t be the ones left holding the bag when the bubble bursts.
Now we come to one of the toughest problems of disentangling the inflationary implications of an asset price bubble. During the time of asset price bubbles, the signals of inflation on with the Fed relies become distorted, because of the disequilibrium in the structure of prices.
Is the Feb being too loose, when asset prices are rising, but the prices of consumer goods and services aren’t? Or, should the Fed start to restrict monetary policy?
I don’t think we know the answer. But, let me quote Alan the Great on this matter. He says the Fed is not able to do much about asset bubbles.
In other words, Caveat Emptor; and, as the ref tells the prize fighters, when you hear the bell, come out to the center of the ring with your hands up.
“..more clear...”
How about this, your Govt is dropping sections of inflation calculations when they make the Economy look poor.
Clear enough?
My husband and I have been discussing the lack of “inflation” talk out there. Prices on everyday items are insane. $5 for a gallon of milk? I should by my own cow for that kind of money. It would pay for itself in short order.
How did your inflation rise?
Taxes, services needed on your home, less buying power.
On the + side, your bank is getting hosed as they loaned “Expensive” money when youfirst bought your home that has gotten very cheap today due to inflation.
Now that your house value is deflating, do you think your taxes will now be reduced...I mean I know it’s the Christmas Season, but...;)
You can actually have deflation and runaway interest rate simultaneously given a sufficiently high enough productivity increase and apparent core inflation.
That's why we had instances of some highly profitable business this last year ended up without sufficient cash to pay dividends. The Fed was a tad slow dealing with this liquidity crisis and precipitated a 12% stock market drop.
No, I was asking you for the real answers. Remember, your house doubled in price (although you haven't sold it) and you realized no inflation in taxes or otherwise, correct? At least that was the point I think you are trying to get to everyone.
I think even toddspatriot is more sane than that.
The Clinton Admin and GHWB Admin would have suffered the same 5% or so inflation rate instead of the artificial “1-3%” that is cited.
Now here is the kicker, inflation would be much higher “if” we hadn’t outsourced entire industries and allowed millions of illegals to entire the US.
In a “normal” economy, the workers can demand a wage increase when overall prices rise, when you now have to compete with Illegals who don’t pay taxes on their businesses, who don’t pay workman’s comp and license fees and insurance, to try to price in inflation would mean that you would lose the majority of your business to the Illegal’s business.
Outsourcing is the same deal.
The “benefit” of that goes to Intl Companies bottom lines, and to you and me the “consumer”.
That is “deflationary pressure” on wages, coupled with the hidden tax of real inflation, the “average joe” is getting hosed and acutally seeing a decrease in their wealth.
No. My taxes most definitely increased. Real estate taxes are included in CPI already.
Now you made yourself clear! I agree with most.
Well let’s look at that bjs1779, which categories of the economy as whole have been dropped off the index, or been given unequal weight:
1. Housing Are you kidding, some areas have seen homes prices boom upwards.
2. Fuel in 2000, gas was what a 1.50 or so?
3. Medical Costs are limited to 7% of the whole of inflation calculations, so even if your medical costs increases 30%, that is only going to “count” for 7% of a inflation calculation.
And of course good old M3, the amount of “money” the Bureau of Printing and engraving is producing, so INOW, those presses running day and night, no one really knows how many “Dollar Bills” they are creating.
M3 was the latest thing to disappear when it became inconvenient...
That's not M3. LOL!
Then explain it TP. Just don't make fun of people.
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