Inflation

[Dotini]

I was checking the price of silver (coins) today, and was startled to see they're going for almost $30/oz. Seeing as how I bought some of them about 10 years ago for about $6/oz, my investment has quintupled, less storage costs.

On the other hand, gold has gone from about $300/oz to $1350/oz in the same time period, rising nearly as much as silver.

What does it mean that the price of these commodities has risen so much in the last ten years?

Baffled,
Dotini

 

[niky]

Silver probably has nowhere to go but up, since silver value crashed some time within the past thirty or forty years... as for Gold... well... in these uncertain times, a lot of people are exchanging worthless paper for the real thing...

 

[spiker]

I would think all precious metals would increase in value over time since there is only a finite supply available in the world.

 

[YSSMAN]

Is gold or silver really worth anything? Only if you believe in it.

 

[Keef]

The price of these metals has as much, if not more, to do with inflation itself as speculation.

Those articles are from various dates but the message is the same. Your silver isn't really worth much more, if more at all, than what it was worth when you bought it. Inflation has simply made the numbers bigger.

That's okay though, because silver and gold will always be worth something. Always has, though I can't tell you why. Paper? Not so much. I have two trees in my front yard among millions in the city, and a mile down the road you'll find an Appleton paper factory churning out countless tons of paper per year. The resources and labor that go into making one American bank note are virtually worthless.

 

[BrutherSuperior]

Here's your answer;

aka: quantitative easing

 

[Pyle_PMG]

I am sick and tired of constantly hearing about inflation. Countries should just make their money obsolete and adopt a world currency, one where the money is worth the same amount everywhere. It would simplify all our current problems.

 

[Keef]

I am sick and tired of constantly hearing about inflation. Countries should just make their money obsolete and adopt a world currency, one where the money is worth the same amount everywhere. It would simplify all our current problems.

How?

 

[Omnis]

Is gold or silver really worth anything? Only if you believe in it.

Did you learn that in political science class?

 

[Crash]

I am sick and tired of constantly hearing about inflation. Countries should just make their money obsolete and adopt a world currency, one where the money is worth the same amount everywhere. It would simplify all our current problems.

I highly doubt that would simplify all our current problems. If I understood correctly, one of the major issues within the Euro block over the past couple of years was that the single currency made it hard for each country to adjust their individual monetary policies to suit their different economic situations with the interest rates set by the European Central Bank.

Of course, I guess you could argue that Central Banks are all greedy pigs and they should just be abolished so that the market can do its own thing to correct itself, but let's ignore that option for a moment, since I highly doubt that all central banks around the world will be eliminated completely, at least in the near future.

Please explain how that would "simplify all our current problems."

 

[hambone8611]

Silver probably has nowhere to go but up, since silver value crashed some time within the past thirty or forty years... as for Gold... well... in these uncertain times, a lot of people are exchanging worthless paper for the real thing...

Be that is it may, but where I live cash is still king.

 

[Pyle_PMG]

My theory is that to simplify the problem you need to have a complicated yet manageable solution. Having a world currency would only be part of a solution to solve the problem that were dealing with. To be able to eliminate inflation you need to be able to identify the factors that cause it. Issues such as excessive government spending, and the corporations and banks whose success countries depend on. Maybe my view is communistic, maybe it's not. Basically a supreme government, divides the world into 5 equal sections determined by population density. Each region runs under state control, citizens have the right to one car a house, food and a job, everyone is paid the same, extra money is given to government. That extra income is put into a reserve, in the event a region experiences a deficit, money from the reserve is used to pay off the regions debts. If all is controlled by one, inflation no longer exists. You would be of a region not a country.

 

[niky]

Do you know how much cars actually cost? Six billion cars ain't cheap... and there's no amount of menial farm labor that will even begin to pay the cost of a shiny new four-door econobox... not in one farmer's lifetime.

 

[DKLion3s]

Just from various musings and investments, my understanding is the world was once under one currency, precious metals, especially gold. It was the the way in which countries amassed wealth.

As wars broke out in various regions, over time, that wealth started to gather more in some countries and left defeated countries scrambling for other means of trading with. This trend kept going until almost all mined precious metal, at the time, was distributed between just a few major countries or civilizations.

In turn, countries without, evolved & devised notes (loans+IOUs=dollars) as a way to support themselves during times of hardship and wars. Which inturn lead to what we have today. Now, I've condensed the process greatly in this explanation.

Inflation now happens when countries start borrowing more, year over year, than they can afford to pay back, wether with paper, product and/or precious metals/materials. Once this happens then their own paper (IOUs) become a liabillity to trading, hence their credit worthiness goes down, and it takes that much more of their paper to trade with.

As I stated before, this is a condensed version of how it all works. And my understanding of the situation as a whole.


Edit: Just for further clarification. That's why the English pound holds the highest value, because it's based on gold and always has. The US dollar at one time was based on gold, but after the breakaway from England, they found other means, oil, which was thought at the time to be of long lasting (resource-wise) infinite way to back trading.

For the US, the inevitable happened. Oil was discovered to be finite, and with the ensuing conditions, wars and all, are now in a pickle to find another way of backing the dollar. Wether that be through making products or whatnot. Most other countries are in a similar dilema, trying to find a way to back their currency for trade.

 

[Pyle_PMG]

Sorry, I meant bicycles, cars are for the wealthy, aka those in the top government.

 

[Biggles]

Warren Buffet's position on gold:

"Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

"You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"

(I have to say, I'm a bit dubious about the 67 foot cube - surely got to be much more than that?)

 

[DKLion3s]

^... I'll go with the farmland, doesn't necessarily have to be US farmland though, but anywhere that can sustain it for a long time. lol

It is very possible, 67' room, is accurate. You've got to consider the density of gold.

 

[Famine]

[Gold] has no utility

Gold is extremely useful in aeronautical and cosmological travel as an electrical conductor - it isn't corroded by any naturally occuring substance and thus components may be used in conditions that would cause other, more conductive metals, to corrode and fail. Jet engines, notably. It reflects radiation well too - again, useful for space travel, particularly on the satellites which allow us to communicate, watch television and drive our cars down strange streets. In fact the shinyness (reflecting EM) and resistance to corrosion were probably what first lead us to valueing it...

I have two trees in my front yard among millions in the city, and a mile down the road you'll find an Appleton paper factory churning out countless tons of paper per year. The resources and labor that go into making one American bank note are virtually worthless.

Dollars are printed on cotton-based paper. No trees were harmed in the making of this currency.

 

[nk4e]

My theory is that to simplify the problem you need to have a complicated yet manageable solution. Having a world currency would only be part of a solution to solve the problem that were dealing with. To be able to eliminate inflation you need to be able to identify the factors that cause it. Issues such as excessive government spending, and the corporations and banks whose success countries depend on. Maybe my view is communistic, maybe it's not. Basically a supreme government, divides the world into 5 equal sections determined by population density. Each region runs under state control, citizens have the right to one car a house, food and a job, everyone is paid the same, extra money is given to government. That extra income is put into a reserve, in the event a region experiences a deficit, money from the reserve is used to pay off the regions debts. If all is controlled by one, inflation no longer exists. You would be of a region not a country.

So if I went through 10 years of school in the past. I will be getting paid the same as the person next to me, who just newly entered the work force?

 

[DKLion3s]

My theory is that to simplify the problem you need to have a complicated yet manageable solution. Having a world currency would only be part of a solution to solve the problem that were dealing with. To be able to eliminate inflation you need to be able to identify the factors that cause it. Issues such as excessive government spending, and the corporations and banks whose success countries depend on. Maybe my view is communistic, maybe it's not. Basically a supreme government, divides the world into 5 equal sections determined by population density. Each region runs under state control, citizens have the right to one car a house, food and a job, everyone is paid the same, extra money is given to government. That extra income is put into a reserve, in the event a region experiences a deficit, money from the reserve is used to pay off the regions debts. If all is controlled by one, inflation no longer exists. You would be of a region not a country.

This is the concept communism was built on, so much for that, as we know.

 

[WVUscion]

My theory is that to simplify the problem you need to have a complicated yet manageable solution. Having a world currency would only be part of a solution to solve the problem that were dealing with. To be able to eliminate inflation you need to be able to identify the factors that cause it. Issues such as excessive government spending, and the corporations and banks whose success countries depend on. Maybe my view is communistic, maybe it's not. Basically a supreme government, divides the world into 5 equal sections determined by population density. Each region runs under state control, citizens have the right to one car a house, food and a job, everyone is paid the same, extra money is given to government. That extra income is put into a reserve, in the event a region experiences a deficit, money from the reserve is used to pay off the regions debts. If all is controlled by one, inflation no longer exists. You would be of a region not a country.

I would suggest reading animal farm, could show you some insight into why this wouldn't work to well.

Some animals are more equal then others!

 

[Pyle_PMG]

Well thank you for giving your opinion. Isn't Animal Farm the book by George Orwell where animals take over? I didn't get to pick this book to study for the Grade 10 course, I instead chose Tom Clancy's the Hunt for Red October. Meaning I haven't got to read Animal Farm yet, but I will read it when I get the chance.

 

[Keef]

Dollars are printed on cotton-based paper. No trees were harmed in the making of this currency.

It seems you're correct.

Luckily my point still stands because cotton and flax are pretty well commercialized, can be harvested and regrown easily, and half of their supply isn't protected by national parks or the endangered species list.

 

[AlexGTV]

Today's dollar has the same value as 3 cents of the first dollar printed in the 18th century.

 

[Dotini]

A typical home in Seattle in 1971 was $10,000.
I bought mine in 1986 for $64,000.
Today it is valued at almost $400k.

Wages have NOT kept up!

 

[Danoff]

A typical home in Seattle in 1971 was $10,000.
I bought mine in 1986 for $64,000.
Today it is valued at almost $400k.

Wages have NOT kept up!

That's partly because the value of land in Seattle has become more valuable (and partly because of inflation). There are plenty of places in the united states where wages have kept up with the price of land (especially when adjusted for inflation). As cities grow, locations within them become far more valuable and wages should not keep up. Look for a city that hasn't gown in the last 40 years and you'll find stable land prices.

 

[BrutherSuperior]

I am sick and tired of constantly hearing about inflation. Countries should just make their money obsolete and adopt a world currency, one where the money is worth the same amount everywhere. It would simplify all our current problems.

Google "purchase power parity" + "big mac"

 

[AlexGTV]

That's partly because the value of land in Seattle has become more valuable (and partly because of inflation). There are plenty of places in the united states where wages have kept up with the price of land (especially when adjusted for inflation). As cities grow, locations within them become far more valuable and wages should not keep up. Look for a city that hasn't gown in the last 40 years and you'll find stable land prices.

That's the same thing I had in my mind to post and you caught me. In Greece we call that "air". To rent stores downtown you need to be a shipowner. Outrageous prices.

 

[Pyle_PMG]

I fail to see how the price of a big mac in the USA compared to the price of a big mac in other countries relates to this inflation. The index assumes that it costs McDonald's the same amount of money to make a big mac around the world. This assumption is assadine. For one, the amount of beef, vegetables, cheese, and wheat required to available varies in each country, if in one country it is harder to get these things, the price will obviously be affected. Second, the labour costs associated with assembly vary from country to country (in China, workers paid less than in the states). And finally, Big Mac's don't always use beef, in some countries pork is substituted, pork costs more, so the increase in cost to make it will be reflected in the consumer price. These three things make your arguement invalid.

 

[Keef]

I fail to see how the price of a big mac in the USA compared to the price of a big mac in other countries relates to this inflation. The index assumes that it costs McDonald's the same amount of money to make a big mac around the world. This assumption is assadine. For one, the amount of beef, vegetables, cheese, and wheat required to available varies in each country, if in one country it is harder to get these things, the price will obviously be affected. Second, the labour costs associated with assembly vary from country to country (in China, workers paid less than in the states). And finally, Big Mac's don't always use beef, in some countries pork is substituted, pork costs more, so the increase in cost to make it will be reflected in the consumer price. These three things make your arguement invalid.

It's simply an illustration of currency exchange rates. Exchange rates are very complex beasts with many factors to consider, including inflation and deflation of currencies. Don't get all up in arms until you know what the point is.