Inflation

[BrutherSuperior]

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!

Real estate is a different type of scarcity than money supply.

For instance, each piece of real estate is unique in of itself. That alone is very significant...especially if you're say you're looking to buy property for a gas station. A corner lot is more scarce than a non-corner lot; so you pay more.

 

[BrutherSuperior]

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..

It's because you fail to realize that the number printed on your $5 bill really means little. It's the purchasing power that matters. More simply, it's how much your $5 can buy you.

A Big Mac might be $2. If inflation sets in, that Big Mac can be $20. You're getting the same product, yet, your $5 can buy you 2 and a drink in one situation and you're quite short in the other. This is an extreme example of inflation and how printing too much money actually makes everyone poorer.

The less purchasing power you have, the poorer you are. (unless you own TIPS/STRIPS)

 

[Pyle_PMG]

I wasn't getting flustered, I was just expressing my opinion. I see your point, I just think it is pointless to have all these currencies and fluctuating exchange rates. In fact how the rest of the world views your country and its resources affects the value of the currency. If the rest of the world hates you, your pretty well going to experience inflation. Think about Germany before World War II. Germany had to pay for WWI, there currency was worth nothing, Germany kept printing money, lowering the amount of their currency even further. In 1918, hot dogs cost 6.60 marks per kilogram. After paying for some of the war, Germany was broke. In 1923, hot dogs cost 15.4 million marks per kg. Talk about inflation, this is an example of hyper-inflation. If the USA keeps churning out money 24/7, could they experience hyper-inflation? Could it affect their main training partner and my homeland Canada?

 

[Mario2Lopez]

Why do people worry about inflation. The US is the one that has controlled world currency since we won WWII. The use will not suffer from this because we are the only ones that can print money 24/7. When countries asks for loans, what they are really asking is for the right to print money. Countries are not allowed to print money as they please. The EURO was set into place to try to take away the US power in economics.

 

[GT5Junkie]

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 agree with Warren, and I work at a gold mine. The vast majority of the value of gold is because of jewelry and investment, i.e. it has value because we value it, not because it's so useful. Obviously it does have many industrial uses, but without jewelry and investment, gold would be worth a small fraction of what it is now.

I don't think he literally meant it has zero utility, just that it's utility relative to it's value is hugely disproportionate to the other things he mentioned (farmland, Exxon, etc).

 

[GT5Junkie]

Why do people worry about inflation. The US is the one that has controlled world currency since we won WWII. The use will not suffer from this because we are the only ones that can print money 24/7. When countries asks for loans, what they are really asking is for the right to print money. Countries are not allowed to print money as they please. The EURO was set into place to try to take away the US power in economics.

Essentially none of this is true. We can't print money 24x7 because of inflation. We don't control world currency. Soverign nations CAN print money as they please. Etc.

 

[Pupik]

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

Great, now I'm having a Burl Ives moment.

But I feel inflation really boils down to the innate desire to be greedy, and also that nobody wants their value and their assets to decay. Constant re-evaluation of your worth is the air in that balloon, convincing others is the pump that does so, and confidence is the oil that lubes the pump.

 

[Famine]

I agree with Warren, and I work at a gold mine. The vast majority of the value of gold is because of jewelry and investment, i.e. it has value because we value it, not because it's so useful. Obviously it does have many industrial uses, but without jewelry and investment, gold would be worth a small fraction of what it is now.

I don't think he literally meant it has zero utility, just that it's utility relative to it's value is hugely disproportionate to the other things he mentioned (farmland, Exxon, etc).

I largely agree - the fascination with gold came about because of the lustre and that it couldn't be tarnished. It took millennia of research to find something that could harm it - aqua regia - but we'd already ascribed significant value to it. The utility of gold comes from the properties we used to only value for decoration - that it stays shiny and doesn't corrode under almost any circumstances means it's good for investment (it doesn't "go off"), reflectivity (aircraft windshields, astronaut visors, telecommunications satellite), anywhere moving electrical contacts are required (spacecraft, jet engines) and heat dissipation (McLaren F1 engine bay - shiny!).

The irony is that gold has become many orders of magnitude more useful in the era of electronics, space travel and aviation than it ever has been in the past. The phrase "it has zero utility" is flat wrong and Mr. Buffett can thank gold for every phone call he makes, every satellite TV channel he watches, every advancement made possible by the space programme and every plane journey he's made without crashing to death.

 

[Dotini]

In our zeal for constant growth in our economies, the elites in business, government, academe and more recently the street, have come to rely upon constant expansion in the supply of money and credit. It was never considered that the underlying asset values of land and buildings would do anything but go up, and that the path to prosperity would deviate overmuch from a steady march upward. The expansion had even come to the point of relying on speculative bets on risky contracts being considered assets and figured into GDP! Thank-you, Milton Friedman.

Now the bloom is off that rose, and we stare stagflation and onerous debt in the face. Some wonder where our jobs and futures went, and even question the value of education for positions that no longer exist.

The trouble with too-rapidly expanding money and credit is precisely inflation. The attractiveness of gold and silver as the basis of currency and credit is that the supply is finite. Growth will be limited, but so will the opportunity for unrealistic valuations, ruinous debt and speculation. It may be a sounder basis for an economy and a sustainable civilization. Or it may not. The vicissitudes of Man on Earth has shown the path to be rocky, strewn with mountains, cliffs and ledges.

Humbly seeking wisdom and correction,
Dotini

 

[DKLion3s]

^... Well stated! Hence the reasoning, every measure has to have a base, or risk that measure to run amok.

 

[Dotini]

http://www.dailymail.co.uk/news/article-1355055/Food-prices-fastest-rise-5-years-blow-families.html

At the risk of linking to the much-despised Daily Mail, please see the chart showing inflation in UK food prices. In the experience of those in the UK, are these prices believable? In the US, we tend not to include the price of food as a factor in inflation,

 

[GT5Junkie]

http://www.dailymail.co.uk/news/article-1355055/Food-prices-fastest-rise-5-years-blow-families.html
In the US, we tend not to include the price of food as a factor in inflation,

Food and beverage makes up almost 1/5th of the Consumer Price Index in the US.

 

[blaaah]

The prices in the UK of a lot of food items really are shooting up, but they have been for a quite awhile not just over the last year.
The biggest rises I see are in confectionery/chocolate/biscuits etc.

 

[Car-less]

In the past year I have seen my favoured brand of bread rolls rise by just over 20%, and fruit juice by almost 40%, so not only believable but very much a reality. Petfood too has risen by around 15%, and confectionery as noted above has risen, but I cannot put a figure on that.

 

[Sureboss]

http://www.dailymail.co.uk/news/article-1355055/Food-prices-fastest-rise-5-years-blow-families.html

At the risk of linking to the much-despised Daily Mail, please see the chart showing inflation in UK food prices. In the experience of those in the UK, are these prices believable? In the US, we tend not to include the price of food as a factor in inflation,

Food prices are rising, as are the profits of the big supermarkets (Tesco's last 12 month report was of a £3.4billion profit, post-tax I believe.), stuff like wheat is well known to be increasing massively in trade price, the problem with a report like that is that it is such a small fraction of what people buy, Sainsbury's is always more expensive than the likes of Tesco, Asda and Morrison's, so that's a bit of a weak comparison.

I can go to my independent greengrocers and save money on the same items, the inflation is driven by people's desire to shop in one place, the supermarkets have a massive stronghold in the UK, Tesco being the main one, in my area we have 8 Tesco outlets, 1 Sainsbury's, 1 Morrisons' and no Asda.

I like how the BRC bloke in that report says that the supermarkets have taken the brunt of the VAT rise, in reality I think this is an overstatement of how much of a difference it should make, not to mention that the majority of the stuff people buy (the essentials) are VAT free, though what is VAT-applied and exempt in food stuffs is quite complex, but as a basic summary, unprocessed and essential food is exempt, the luxury, ready-to-eat, etc, is VAT applied, as a general rule of thumb, but not a definite rule.

The wastage in the UK food industry is one of the factor that drives the prices, this is driven by some of the draconian rules by the EU on the specs of fruit and veg. It's an immense problem and something the supermarkets and industry will do everything they can to not reveal how big it is, we could support a small country on the amount of food that is wasted before it reaches the shelves.

If people shop around, they can protect themselves from most of the rises, but the typical UK shopper likes the all in one place convenience, it's their decision, their time or saving, you don't get both.

 

[Keef]

What are you trying to say with that post? That inflation isn't the main cause of rising prices? That inflation won't effect people if they simply shop around? What about all the other costs of shopping around, like commuting back and forth between stores? Ever wondered why people like the idea of one store carrying everything at what may even be a higher price than the store 3 miles further away? What's the point you're making by mentioning that supermarket profits are rising?

 

[blaaah]

I remember when Cadbury's Dairy Milk bar was 7 and 1/2 pence. And I'm not that old. Old enough to have had Half pence coins when I was a child though. Decimal that is. So glad to have missed pre-decimal.
I really don't understand why the government doesn't tell the Mint to stop making 1p and 2p coins, they are ridiculous. All prices should be rounded to a 5.

 

[Keef]

All prices should be rounded to a 5.

And all prices would therefore be rounded up. Still think they should be rounded?

 

[blaaah]

Market value would dictate the prices after a short while.

 

[Keef]

But not until inflation overtook the possible 4 cents that everything would rise.

Anyway, what would you do with all the smaller denominations currently in circulation?

 

[blaaah]

The banks deal with that just like they do constantly removing old coins and notes from circulation.
Notes get burnt, coins melted down.

 

[Dotini]

The banks deal with that just like they do constantly removing old coins and notes from circulation.
Notes get burnt, coins melted down.

In this context it is interesting to note that the metallic value of certain coins still in circulation well exceeds their nominal value. In the US, it has been suggested that the penny be removed from circulation for the reasons discussed in preceding posts above. That would allow certain pennies, (not all) to be melted down for their metallic value.

Accordingly, some individuals at this time are preparing to reap a profit by purchasing large quantities of pennies from banks. They are then sorted through according to their mint and date, and the remainder sold back to other banks. Whole garages stacked with specific pennies are thereby collected. On the glorious day when pennies are obsolete, our collector is legally free to melt or export them.

 

[BobK]

Why on Earth would anybody hoarding cents for their metallic content care about the mint mark? Sure numismatists would care, but not metal hoarders.

The cent will always be legal tender, even if they stop making them, so it'll still be illegal to melt/export them; I don't believe the legislation in question is conditioned on them being legal tender.

 

[Dotini]

Why on Earth would anybody hoarding cents for their metallic content care about the mint mark? Sure numismatists would care, but not metal hoarders.

The cent will always be legal tender, even if they stop making them, so it'll still be illegal to melt/export them; I don't believe the legislation in question is conditioned on them being legal tender.

The copper content of pennies varies according to the date minted, hence my probably redundant use of the term "mint". The point of the legislation would putatively be to remove them as a unit of legal tender, thereby making them fair game for melt-down and/or export by private individuals. All of this is likely years in the future.

http://en.wikipedia.org/wiki/Penny_(United_States_coin)

 

[BobK]

Why on earth would they remove them as legal tender, given that they've already been manufactured? Consider that every US coin made by the Mint for domestic general circulation since 1792 is still legal tender today, with the exception of pre-1933 gold? Trade Dollars weren't for domestic usage, if you are inclined to mention them.

Of course you'd be crazy to spend your hoard of two, three and twenty cent pieces, but legally you could do so.

 

[Dotini]

Why on earth would they remove them as legal tender, given that they've already been manufactured? Consider that every US coin made by the Mint for domestic general circulation since 1792 is still legal tender today, with the exception of pre-1933 gold? Trade Dollars weren't for domestic usage, if you are inclined to mention them.

Of course you'd be crazy to spend your hoard of two, three and twenty cent pieces, but legally you could do so.

The modern penny is worth only 2% of the 1913 penny in terms of purchasing power. Presumably, the sheer cost of the handling, transport and accounting costs for the nearly worthless little beggar make it an attractive target for cost-cutters. But, basically, I agree with you in the sense that I would be sorry to see it go. I love the US of A, and its currency, despite all faults. Emotionally, it would be a sad moment to scupper the penny.

 

[blaaah]

Interesting, regulations you have in America, doesn't the government care about forgers?
We relatively often have changed coins and notes in the UK, mostly to prevent forgeries.
All old coins and notes cease to be legal tender.
Recently in the UK a large portion of our copper 1ps and 2ps were worth 50% more than face value. Quite a bit of profiteering went on. The more recent coins have less copper. Also our new 5p and 10p coins will have steel in them to replace more expensive metals I presume.

 

[BobK]

The modern penny is worth only 2% of the 1913 penny in terms of purchasing power. Presumably, the sheer cost of the handling, transport and accounting costs for the nearly worthless little beggar make it an attractive target for cost-cutters. But, basically, I agree with you in the sense that I would be sorry to see it go. I love the US of A, and its currency, despite all faults. Emotionally, it would be a sad moment to scupper the penny.

Oh I agree that the cent isn't worth as much as it used to (anybody else here remember penny candy, or even two-for-a-penny candy?). But the mint could just stop issuing new cents; no need to actually demonetize the coin. They simply stopped producing the half cent when they became uneconomical to make (in 1857!) but they remained, and still are today, legal tender. Personally I wouldn't like to see it happen either, but I suppose it's inevitable.

Interesting, regulations you have in America, doesn't the government care about forgers?
We relatively often have changed coins and notes in the UK, mostly to prevent forgeries.
All old coins and notes cease to be legal tender.
Recently in the UK a large portion of our copper 1ps and 2ps were worth 50% more than face value. Quite a bit of profiteering went on. The more recent coins have less copper. Also our new 5p and 10p coins will have steel in them to replace more expensive metals I presume.

I was amazed when GB demonetized the half penny in 1984. Sure, discontinue issuing if needed, but at least let people spend what they still have as long as they stil have them. Even more incomprehensible, to me, is when I discovered that they'd discontinued the farthing in 1956 but demonetized it in 1960.

None of this has anything to do with forging, by the way; it's simply not worth it to counterfeit US coinage. Paper currency is a different matter of course, and the US did recently change its paper currency as an anti forging measure. They didn't demonetize the old bills though, no need. A banknote lasts maybe nine months in circulation before it's too worn to be usable.

 

[Sureboss]

What are you trying to say with that post? That inflation isn't the main cause of rising prices? That inflation won't effect people if they simply shop around? What about all the other costs of shopping around, like commuting back and forth between stores? Ever wondered why people like the idea of one store carrying everything at what may even be a higher price than the store 3 miles further away? What's the point you're making by mentioning that supermarket profits are rising?

The article linked above was stating that rising raw food prices is the main reason why foodstuffs are costing more, when it simply isn't the case. Supermarkets are squeezing money out of suppliers whilst claiming it's costing them more, again, balls. They are making rises above and beyond the rise of VAT that we have had, even though in reality it's only risen by 2.5%, but the affected food stuffs have risen significantly more, and this is shown across other retail sectors.

Of course the commuting factor of shopping around is another cost that can offset the difference in price, but then a lot of people are too lazy to actually walk to the shops, they have to use the car, even if it's only half a mile away, people are lazy, that will never change. For those that live outside of cities and towns, of course shopping around isn't really that effective, unless they are going in to cities/towns anyway/

I've done substantial research in to the UK food industry, along with working in it, the rise in prices has little to do with rising raw food costs (though it's a factor, just a minor one).

 

[Keef]

The article linked above was stating that rising raw food prices is the main reason why foodstuffs are costing more, when it simply isn't the case. Supermarkets are squeezing money out of suppliers whilst claiming it's costing them more, again, balls. They are making rises above and beyond the rise of VAT that we have had, even though in reality it's only risen by 2.5%, but the affected food stuffs have risen significantly more, and this is shown across other retail sectors.

Of course the commuting factor of shopping around is another cost that can offset the difference in price, but then a lot of people are too lazy to actually walk to the shops, they have to use the car, even if it's only half a mile away, people are lazy, that will never change. For those that live outside of cities and towns, of course shopping around isn't really that effective, unless they are going in to cities/towns anyway/

I've done substantial research in to the UK food industry, along with working in it, the rise in prices has little to do with rising raw food costs (though it's a factor, just a minor one).

The main reasons prices of everything around the world are increasing is because of inflation. Everything inflates except what you get paid.

Money is worth less. Raw materials, though worth the same, cost more of this less-valuable money. It costs a company more to buy the raw materials. It costs them more to process the materials. It costs them more to pay their bills. All these extra costs get passed onto the customer as higher prices. People buy less because the prices are inflating. The company's profits go down, though their costs are still going up. The process of inflation is a viscous cycle that eventually ends in disaster for everybody.

What's the one factor I didn't mention in that scenario? Your paycheck. Because the company's core costs are going up and their profits are going down, they can't afford to give you a raise. So now all of your costs - everything you buy at the grocery - are also going up, while your own profit is going down. Now you're in the same situation as the company.

Magnify this inflation situation across the board and apply it to every company and every person and you can see the scope of the problem. The issue of rising food prices is not an issue at all - prices of everything are rising. Why? Because money is losing its value. Why? Because a bunch of idiots sitting in a conference room think they can defy natural economic law.