Inflation is scary stuff.

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Locked
User avatar
Topic Author
coachz
Posts: 1048
Joined: Wed Apr 04, 2007 7:10 am
Location: Charleston, SC

Inflation is scary stuff.

Post by coachz »

I'm reading previous Bogleheads messages and getting scared ! :shock:
I was just a kid in 1965. Do any of you remember so much inflation ?

1) From 1986 through 2011, a dollar lost about half of its value.
2) From 1965 through 1989, a dollar lost about three-quarters of its value.
3) From 1925 through 1949, a dollar lost about a quarter of its value.
User avatar
cheese_breath
Posts: 11786
Joined: Wed Sep 14, 2011 7:08 pm

Re: Inflation is scary stuff.

Post by cheese_breath »

Not sure what you're worried about. Inflation sure isn't any problem now, maybe someday but not now.

FYI, I joined the workforce after graduating from college in 1964 so I lived through some 'scary' inflation periods and came out OK because my pay increases always kept up with the inflation. I would imagine the same would be true if/when we encounter inflationary periods in the future.

As far as investments, especially for us retirees, appropriate AAs should see us through OK.

edit: I forgot to mention "and planning." For example, if your primary retirement income is from pensions without COLA increases, don't spend it all now. Invest part of every payment so you can have some extra when inflation erodes the pension's value.
Last edited by cheese_breath on Mon Aug 19, 2013 10:49 am, edited 1 time in total.
The surest way to know the future is when it becomes the past.
User avatar
Topic Author
coachz
Posts: 1048
Joined: Wed Apr 04, 2007 7:10 am
Location: Charleston, SC

Re: Inflation is scary stuff.

Post by coachz »

Thanks for the insight. I'm just surprised when I look back to see as a kid and a teen that inflation was eroding 3/4 of the value of a dollar. I really didn't notice it though because it is insidious as it happens over time. Just like aging!
Jack
Posts: 3254
Joined: Tue Feb 27, 2007 1:24 am

Re: Inflation is scary stuff.

Post by Jack »

The value of the dollar is just an arbitrary scale for measurement. Do you feel suddenly colder when told the temperature is 22 degrees centigrade instead of 72 degrees fahrenheit? Does the value of your home change just because it is measured in 2013 dollars instead of 1965 dollars? The dollar is currency for exchange. It is not a long term store of value. Putting dollar bills under your mattress is not a good way of holding wealth because the temperature scale can change.

Moderate inflation does no harm and in some cases does a lot of good. Prices and wages simply adjust just like the temperature scales. It is unexpected changes in the rate of inflation that can cause problems. Steady, moderate, expected inflation is not harmful.
furwut
Posts: 2123
Joined: Tue Jun 05, 2012 8:54 pm

Re: Inflation is scary stuff.

Post by furwut »

Back in the 70s when grocery shopping with my mother my job was to check the cans at the back of the shelves. Costs then were rising so fast that, seemingly, every time they restocked the shelves the price went up - but if you carefully looked you may luck into a can with the older price.
User avatar
Sunny Sarkar
Posts: 2443
Joined: Fri Mar 02, 2007 12:02 am
Location: Flower Mound, TX
Contact:

Re: Inflation is scary stuff.

Post by Sunny Sarkar »

This is a very timely post. I personally fear that we are as a group suffering from recency and dropping the guard on inflation.

The following graphic never left me since I was stunned by it when I first read Bill Schultheis' amazing little book, The Coffeehouse Investor, more than a decade ago...

Image
Last edited by Sunny Sarkar on Mon Aug 19, 2013 11:04 am, edited 2 times in total.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
gerrym51
Posts: 1679
Joined: Sat Apr 27, 2013 1:44 pm

Re: Inflation is scary stuff.

Post by gerrym51 »

i had a 12 percent mortgage and was getting raises of 10 percent a year. inflation is what it is
curmudgeon
Posts: 2630
Joined: Thu Jun 20, 2013 11:00 pm

Re: Inflation is scary stuff.

Post by curmudgeon »

cheese_breath wrote: As far as investments, especially for us retirees, appropriate AAs should see us through OK.
I remember the 60's and 70's as a time when the conventional wisdom investor (with a conventional AA heavy on fixed income investments) was getting clobbered by inflation. I was paying attention at the time, though my sources of information then tended to be the newspapers and magazines (while they may have been less sensationalist then, I'm sure over-stating sob stories was still popular).

I experienced the traumatic effects of inflation at a young age. When I was around 4 years old, the bakery truck still made the rounds of our neighborhoods a couple of times a week, stopping for a few minutes every couple of blocks to sell bread and other baked goods to the stay-at-home moms who didn't drive. I would always beg my mom for a nickel to buy a donut when the bakery truck stopped out front of our house, and occasionally she would give in. I still remember the time I excitedly took my nickel down to the truck to choose my donut, only to have the driver tell me "I'm sorry, donuts cost six cents now". I was devastated...

Sometimes I think we may be more marked by experiences when we are young than we realize. My mom grew up in the depression years, and as a result had a very hard time holding any stock or bond investments; she wanted CDs, scattered among many banks for safety. I myself may well over-rate inflation concerns, but if you look back more than a few years to the last time 30-year mortgages could be had for 4% (early 60s), the inflation potential was building even before the oil price shocks of the 70s.
User avatar
Topic Author
coachz
Posts: 1048
Joined: Wed Apr 04, 2007 7:10 am
Location: Charleston, SC

Re: Inflation is scary stuff.

Post by coachz »

I remember that too. My Mom did that. Now it's all bar coded.
furwut wrote:Back in the 70s when grocery shopping with my mother my job was to check the cans at the back of the shelves. Costs then were rising so fast that, seemingly, every time they restocked the shelves the price went up - but if you carefully looked you may luck into a can with the older price.
User avatar
Topic Author
coachz
Posts: 1048
Joined: Wed Apr 04, 2007 7:10 am
Location: Charleston, SC

Re: Inflation is scary stuff.

Post by coachz »

Six cents !! Outrageous ! I even remember just 2 years ago, 12 packs of pepsi were always $2.50 at our local gas stations. Now they are always over $3. Even the 4th of July usually brought them down to $2.50 when they went higher but that ship has sailed.

I go crazy with the cost of eating out. Had a nice dinner, nothing special, just a nice Italian restaurant and after tax and tip the bill was $90. One beer for me, one glass of wine for my wife. It kills me to go out now. We have a mexican buffet that is $5.85 and the food is delicious !
curmudgeon wrote:
cheese_breath wrote: I still remember the time I excitedly took my nickel down to the truck to choose my donut, only to have the driver tell me "I'm sorry, donuts cost six cents now". I was devastated...
gerrym51
Posts: 1679
Joined: Sat Apr 27, 2013 1:44 pm

Re: Inflation is scary stuff.

Post by gerrym51 »

If my wife knew i was posting this i would be in trouble. I've never smoked-but she does-cigarettes 9 dollars a pack here-she complains about prices going up on other things but never mentions cigarettes-gee i wonder why. :mrgreen:
User avatar
Index Fan
Posts: 2587
Joined: Wed Mar 07, 2007 11:13 am
Location: The great Midwest

Re: Inflation is scary stuff.

Post by Index Fan »

I've noticed that I tend to think of the 'base price' of food at the grocery store as the price it was when I first started buying food on my own after leaving home in my youth. This 'informal personalized inflation' observation hits me every once in a while. 'I remember when this cost half that price. Hrm.' :wink:

Inflation truly is the silent enemy, even if it's tame at this particular time.
"Optimum est pati quod emendare non possis." | -Seneca
oxothuk
Posts: 891
Joined: Thu Nov 10, 2011 7:35 pm

Re: Inflation is scary stuff.

Post by oxothuk »

Jack wrote:Moderate inflation does no harm and in some cases does a lot of good.
As in many cases, the distinction between a medicine and a poison is the dosage.
User avatar
nisiprius
Advisory Board
Posts: 52211
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Inflation is scary stuff.

Post by nisiprius »

How scary is it? It depends whether you're a creditor or a debtor. Inflation--or unexpected increases in inflation--are bad for creditors and good for debtors. William Jennings Bryan's "Cross of Gold" speech was a plea for inflation.

Yes, the double-digit inflation circa 1980 was very unsettling at the time, and did give the impression that the ground was unstable under our feet and that it was hard to know how to plan. In reality, I was working, and my salary did keep place with inflation--not smoothly, in fits and starts, so that was neutral.

And, like gerrym, we had a home mortgage at a fixed rate of 9%, which seemed usurious when we got it. Inflation turned out to be one of the better pieces of financial luck we ever had. As our mortgage payments stayed the same, while our income rose, the burden of the payments got lighter and lighter and lighter.

Of course, these days, we have inflation-adjusted bonds... which makes inflation a little less scary for creditors... and, increasingly, we have what can be called inflation-adjusted debt... which makes inflation a little more scary for debtors.

And also of course, unexpected changes in anything, either way, amount to uncertainty, and uncertainty is scary stuff.
Last edited by nisiprius on Mon Aug 19, 2013 2:27 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
mike143
Posts: 1332
Joined: Thu Feb 02, 2012 7:55 pm

Re: Inflation is scary stuff.

Post by mike143 »

coachz wrote:Six cents !! Outrageous ! I even remember just 2 years ago, 12 packs of pepsi were always $2.50 at our local gas stations. Now they are always over $3. Even the 4th of July usually brought them down to $2.50 when they went higher but that ship has sailed.
People just want to stop at one store and buy everything. Long gone are they days of a store being low across the board, and exception being ALDI, Save A Lot, etc. Walmart and Winn Dixie (gocery store in south) are really not the lowest cost on most items and frequently just as high as Publix. You have to be savvy shopper. Walmart has already hooked everyone that they are the lowest and now they are not.

Image
Nothing is free, someone pays...You can't spend your way to financial freedom.
richard
Posts: 7961
Joined: Tue Feb 20, 2007 2:38 pm
Contact:

Re: Inflation is scary stuff.

Post by richard »

Total spending equals total income. This must be true.

If people are spending more, people are earning more. There may be distributional issues (some benefit, some lose), but on the whole it balances.

People tend to focus on rising prices but not pay attention to increases in wages or portfolio value or other income sources and especially people don't pay attention to the link between inflation and increased income.

There are some transitional costs with unexpected inflation (menus must be updated for new prices), but that's not a major problem in the grand scheme of things.

As mentioned, it may be a problem for some people, but it's a bonus for others. In the aggregate, it's neutral.
Leesbro63
Posts: 10634
Joined: Mon Nov 08, 2010 3:36 pm

Re: Inflation is scary stuff.

Post by Leesbro63 »

My 79 year old dad still semi-jokingly talks about taking his grandkids for a nickel ice cream cone.
technovelist
Posts: 3611
Joined: Wed Dec 30, 2009 8:02 pm

Re: Inflation is scary stuff.

Post by technovelist »

That's one (but not the only) reason for having gold in one's portfolio.
In theory, theory and practice are identical. In practice, they often differ.
User avatar
Ged
Posts: 3945
Joined: Mon May 13, 2013 1:48 pm
Location: Roke

Re: Inflation is scary stuff.

Post by Ged »

Inflation like we had in the '70s and '80s was pretty scary. That was primarily due to an external price shock from OPEC. I was a young engineer then and my employer did a lot to cushion the blow with COL salary increases. However I remember retired people on fixed pensions being really hurt by it. I also remember gas quotas.

Those experiences have a lot to do with my motivation to save for retirement. It could happen again and this time I'm not going to be a shiny new PhD.
User avatar
cheese_breath
Posts: 11786
Joined: Wed Sep 14, 2011 7:08 pm

Re: Inflation is scary stuff.

Post by cheese_breath »

curmudgeon wrote:
cheese_breath wrote: As far as investments, especially for us retirees, appropriate AAs should see us through OK.
I remember the 60's and 70's as a time when the conventional wisdom investor (with a conventional AA heavy on fixed income investments) was getting clobbered by inflation. I was paying attention at the time, though my sources of information then tended to be the newspapers and magazines (while they may have been less sensationalist then, I'm sure over-stating sob stories was still popular).
What these stories may omit is that while inflation rises, interest paid on savings also rises. I remember GMAC demand notes were paying around 16-17% in 1983. OTOH retirees on fixed pensions without adequate COLA protection probably did take some drastic hits. But even though these were abnormal times I suspect (without any evidence to back this up) this can partially be attributed to lack of planning on their part. I have known people who retire with pensions adequate to sustain their lifestyles today without giving any thought to whether they would be adequate 10 or 20 years down the road. Additionally anyone retiring should build some cushion into his/her projections for the unexpected.

One thing I do remember that supports your argument though is that tax brackets were not indexed for inflation at that time. A common complaint was from people moving to higher brackets when their pay increases were just keeping pace with inflation.
The surest way to know the future is when it becomes the past.
User avatar
Topic Author
coachz
Posts: 1048
Joined: Wed Apr 04, 2007 7:10 am
Location: Charleston, SC

Re: Inflation is scary stuff.

Post by coachz »

wo hoo happy days are here again! $2.50 pepsi!
mike143 wrote:
coachz wrote:Six cents !! Outrageous ! I even remember just 2 years ago, 12 packs of pepsi were always $2.50 at our local gas stations. Now they are always over $3. Even the 4th of July usually brought them down to $2.50 when they went higher but that ship has sailed.
People just want to stop at one store and buy everything. Long gone are they days of a store being low across the board, and exception being ALDI, Save A Lot, etc. Walmart and Winn Dixie (gocery store in south) are really not the lowest cost on most items and frequently just as high as Publix. You have to be savvy shopper. Walmart has already hooked everyone that they are the lowest and now they are not.

Image
hazlitt777
Posts: 1033
Joined: Fri Aug 12, 2011 4:10 am
Location: Wisconsin

Re: Inflation is scary stuff.

Post by hazlitt777 »

I just bought a car battery for my Jeep. 109 dollars! Just a handful of years ago, one could get a battery for 75. I think inflation is a lot higher and more insidious than one thinks.

Therefore I own, along with my stocks and bonds, gold to provide some protection.
rec7
Posts: 2369
Joined: Tue Oct 28, 2008 7:22 pm

Re: Inflation is scary stuff.

Post by rec7 »

The average price of a new car is 31k. This chart goes back to 1970 when they averaged about 3.5k
http://www1.eere.energy.gov/vehiclesand ... tw219.html
User avatar
Watty
Posts: 28859
Joined: Wed Oct 10, 2007 3:55 pm

Re: Inflation is scary stuff.

Post by Watty »

I can remember in the 1980's some friends buying a used car, keeping it for a few years then selling it for more than it cost them. The inflation rate was higher than the depreciation rate so there was a net gain, as long as you didn't wreck your car :x

As long as you were working and still savings and you are getting matching pay increases you could pretty well cope with inflation. I think at one point I was getting raises at lease very six months to keep up with inflation.

Deflation and Stagflation are a lot more scary to me. With all the government debt I would think that inflation would be forced if deflation started since the impact of deflation would be so severe. The stagflation scenario seems like a real possibility since if prices start increasing more there is little pressure for wages to keep up.
sport
Posts: 12094
Joined: Tue Feb 27, 2007 2:26 pm
Location: Cleveland, OH

Re: Inflation is scary stuff.

Post by sport »

There are consequences of inflation that we usually don't think about. Consider someone with adequate life insurance coverage, but can no longer buy life insurance due to recent health changes. The financial protection (in real terms) for that person's beneficiaries can be significantly decreased by inflation. Yet, there is nothing they can do about it. IMO, the only good thing about inflation is that it prevents deflation, which can be even worse.
Jeff
technovelist
Posts: 3611
Joined: Wed Dec 30, 2009 8:02 pm

Re: Inflation is scary stuff.

Post by technovelist »

jsl11 wrote:There are consequences of inflation that we usually don't think about. Consider someone with adequate life insurance coverage, but can no longer buy life insurance due to recent health changes. The financial protection (in real terms) for that person's beneficiaries can be significantly decreased by inflation. Yet, there is nothing they can do about it. IMO, the only good thing about inflation is that it prevents deflation, which can be even worse.
Jeff
Why is deflation bad? That seems to be a truism that goes unquestioned.
In theory, theory and practice are identical. In practice, they often differ.
Jack
Posts: 3254
Joined: Tue Feb 27, 2007 1:24 am

Re: Inflation is scary stuff.

Post by Jack »

hazlitt777 wrote:I just bought a car battery for my Jeep. 109 dollars! Just a handful of years ago, one could get a battery for 75. I think inflation is a lot higher and more insidious than one thinks.

Therefore I own, along with my stocks and bonds, gold to provide some protection.
It seems you should have bought lead.
Jack
Posts: 3254
Joined: Tue Feb 27, 2007 1:24 am

Re: Inflation is scary stuff.

Post by Jack »

technovelist wrote:Why is deflation bad? That seems to be a truism that goes unquestioned.
There are several reasons that deflation is worse that inflation starting with the fact that its relatively easy to stop inflation. As Paul Volcker demonstrated in the 1980s, you just keep raising interest rates until inflation is stopped. On the other hand you can't push interest rates below zero to stop deflation. Once deflation takes hold you can be stuck for a very long time. Deflation and inflation are asymmetrical risks, with one much more dangerous than the other.

Another reason that deflation is bad that it increases the burden on debtors while improving the position of creditors. This is just the opposite of what you want during deflation because debtors already have constrained spending so will be forced to spend even less. But creditors on the other hand are not likely to pick of the slack by increasing their spending so overall spending goes down, increasing the downward economic spiral.

Finally, all consumers are likely to decrease spending. Why buy a car this year when it will be cheaper next year, or the next? Likewise, businessmen are less likely to invest in growth. Why build a new factory today when it will be cheaper to build it next year? Why invest in new business when spending and the prices you can charge for your business are going down. As all businesses lay off employees, the employees have even less to spend which makes business even worse.

All of these factors reinforce the deflationary downward spiral and it can be very difficult to escape. Nominal interest rates can't go below zero. Inflation, on the other hand, can easily be fixed. All it requires is a determined Federal Reserve to push up rates. There is no limit.
Leesbro63
Posts: 10634
Joined: Mon Nov 08, 2010 3:36 pm

Re: Inflation is scary stuff.

Post by Leesbro63 »

Watty wrote:I can remember in the 1980's some friends buying a used car, keeping it for a few years then selling it for more than it cost them. The inflation rate was higher than the depreciation rate so there was a net gain, as long as you didn't wreck your car :x
This is an illusion. The REAL value of the car still depreciated. And buying the NEW car cost a proportionate amount more than if there had been little inflation (but the new car still always costs more than a 2-3 year old one).
Call_Me_Op
Posts: 9881
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Inflation is scary stuff.

Post by Call_Me_Op »

technovelist wrote:That's one (but not the only) reason for having gold in one's portfolio.
Why gold? Stocks are much better at countering inflation over the long term.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
hazlitt777
Posts: 1033
Joined: Fri Aug 12, 2011 4:10 am
Location: Wisconsin

Re: Inflation is scary stuff.

Post by hazlitt777 »

Jack wrote:
hazlitt777 wrote:I just bought a car battery for my Jeep. 109 dollars! Just a handful of years ago, one could get a battery for 75. I think inflation is a lot higher and more insidious than one thinks.

Therefore I own, along with my stocks and bonds, gold to provide some protection.
It seems you should have bought lead.
Gold is a lot easier to store...and it has gone up too in that same time. It is the "universal commodity."
hazlitt777
Posts: 1033
Joined: Fri Aug 12, 2011 4:10 am
Location: Wisconsin

Re: Inflation is scary stuff.

Post by hazlitt777 »

technovelist wrote:
jsl11 wrote:There are consequences of inflation that we usually don't think about. Consider someone with adequate life insurance coverage, but can no longer buy life insurance due to recent health changes. The financial protection (in real terms) for that person's beneficiaries can be significantly decreased by inflation. Yet, there is nothing they can do about it. IMO, the only good thing about inflation is that it prevents deflation, which can be even worse.
Jeff
Why is deflation bad? That seems to be a truism that goes unquestioned.
Deflation is wonderful. I love sales. It leaves more money in my pocket so I can buy other things, thus strengthening the economy.

If it were not for the generally falling prices in electronics, there would be a lot fewer people owning computers and ipods. I'm sure all those who got jobs in that industry, appreciate deflation.
mollymillions
Posts: 40
Joined: Fri Jan 25, 2013 2:28 pm

Re: Inflation is scary stuff.

Post by mollymillions »

hazlitt777 wrote:
technovelist wrote:
jsl11 wrote:There are consequences of inflation that we usually don't think about. Consider someone with adequate life insurance coverage, but can no longer buy life insurance due to recent health changes. The financial protection (in real terms) for that person's beneficiaries can be significantly decreased by inflation. Yet, there is nothing they can do about it. IMO, the only good thing about inflation is that it prevents deflation, which can be even worse.
Jeff
Why is deflation bad? That seems to be a truism that goes unquestioned.
Deflation is wonderful. I love sales. It leaves more money in my pocket so I can buy other things, thus strengthening the economy.

If it were not for the generally falling prices in electronics, there would be a lot fewer people owning computers and ipods. I'm sure all those who got jobs in that industry, appreciate deflation.
That's deflation applied to a very specific industry, not the monetary system.

Aside from that, deflation in the electronics industry has largely been caused by the pressure companies feel to drive costs down to compete. They offshore, automate, and whatever else they can do to keep their wages low. In a high-wage area like the US, there are few electronics manufacturing jobs. There would be many more jobs here and better paying if electronics commanded a higher price. Even the electronics design industry, which maintains high wages, is heavily offshored.
oxothuk
Posts: 891
Joined: Thu Nov 10, 2011 7:35 pm

Re: Inflation is scary stuff.

Post by oxothuk »

hazlitt777 wrote: I'm sure all those who got jobs in that industry, appreciate deflation.
Deflation is a monetary phenomenon, and affects prices across the board.

Technology improvements which reduce the cost of a product relative to all other prices are a different phenomenon and not the same as deflation.
User avatar
Phineas J. Whoopee
Posts: 9675
Joined: Sun Dec 18, 2011 5:18 pm

Re: Inflation is scary stuff.

Post by Phineas J. Whoopee »

What this country needs is a really good five-cent cigar.

-- Usually attributed to Vice President Thomas R. Marshall
There are plenty of good five-cent cigars in the country. The trouble is they cost a quarter. What this country needs is a good five-cent nickel.

-- Franklin P. Adams
PJW
User avatar
Oicuryy
Posts: 1959
Joined: Thu Feb 22, 2007 9:29 pm

Re: Inflation is scary stuff.

Post by Oicuryy »

hazlitt777 wrote:Deflation is wonderful. I love sales. It leaves more money in my pocket so I can buy other things, thus strengthening the economy.
You would have loved 1929-1933. The value of a dollar rose 30%. People had so much money in their pockets and the economy was so strong they called it the Great Depression.

Image

Ron
Money is fungible | Abbreviations and Acronyms
hazlitt777
Posts: 1033
Joined: Fri Aug 12, 2011 4:10 am
Location: Wisconsin

Re: Inflation is scary stuff.

Post by hazlitt777 »

Phineas J. Whoopee wrote:
What this country needs is a really good five-cent cigar.

-- Usually attributed to Vice President Thomas R. Marshall
There are plenty of good five-cent cigars in the country. The trouble is they cost a quarter. What this country needs is a good five-cent nickel.

-- Franklin P. Adams
PJW

I like that one.. +1
hazlitt777
Posts: 1033
Joined: Fri Aug 12, 2011 4:10 am
Location: Wisconsin

Re: Inflation is scary stuff.

Post by hazlitt777 »

Oicuryy wrote:
hazlitt777 wrote:Deflation is wonderful. I love sales. It leaves more money in my pocket so I can buy other things, thus strengthening the economy.
You would have loved 1929-1933. The value of a dollar rose 30%. People had so much money in their pockets and the economy was so strong they called it the Great Depression.

Image

Ron
Bad economic theory. The economy stagnated because they froze wage prices for one. That caused labor to be overpriced and thus no work. More complicated than that but it was a big element.

From 1869-79 there was an annual deflation of 3.8% and the economy roared. Imagine a $20 dollar bill sitting in the drawer going up 3.8% annually. What is that over 10 years? 45% if my math is right.
hazlitt777
Posts: 1033
Joined: Fri Aug 12, 2011 4:10 am
Location: Wisconsin

Re: Inflation is scary stuff.

Post by hazlitt777 »

oxothuk wrote:
hazlitt777 wrote: I'm sure all those who got jobs in that industry, appreciate deflation.
Deflation is a monetary phenomenon, and affects prices across the board.

Technology improvements which reduce the cost of a product relative to all other prices are a different phenomenon and not the same as deflation.
Actually, "aggregrate inflation" is an intellectual construct. Closer to the truth is that inflation manifests itself more in some areas than others...depending upon where the new money flows. This is part of the cause of bubbles.
hazlitt777
Posts: 1033
Joined: Fri Aug 12, 2011 4:10 am
Location: Wisconsin

Re: Inflation is scary stuff.

Post by hazlitt777 »

mollymillions wrote:
hazlitt777 wrote:
technovelist wrote:
jsl11 wrote:There are consequences of inflation that we usually don't think about. Consider someone with adequate life insurance coverage, but can no longer buy life insurance due to recent health changes. The financial protection (in real terms) for that person's beneficiaries can be significantly decreased by inflation. Yet, there is nothing they can do about it. IMO, the only good thing about inflation is that it prevents deflation, which can be even worse.
Jeff
Why is deflation bad? That seems to be a truism that goes unquestioned.
Deflation is wonderful. I love sales. It leaves more money in my pocket so I can buy other things, thus strengthening the economy.

If it were not for the generally falling prices in electronics, there would be a lot fewer people owning computers and ipods. I'm sure all those who got jobs in that industry, appreciate deflation.
That's deflation applied to a very specific industry, not the monetary system.

Aside from that, deflation in the electronics industry has largely been caused by the pressure companies feel to drive costs down to compete. They offshore, automate, and whatever else they can do to keep their wages low. In a high-wage area like the US, there are few electronics manufacturing jobs. There would be many more jobs here and better paying if electronics commanded a higher price. Even the electronics design industry, which maintains high wages, is heavily offshored.
I used electronics as an example. But you bring up valid issues. I don't think it appropriate to go into it too much here, but I will say that if it were not for the increase of the money supply, prices would be even lower, all other things being equal.
Jack
Posts: 3254
Joined: Tue Feb 27, 2007 1:24 am

Re: Inflation is scary stuff.

Post by Jack »

hazlitt777 wrote:From 1869-79 there was an annual deflation of 3.8% and the economy roared. Imagine a $20 dollar bill sitting in the drawer going up 3.8% annually. What is that over 10 years? 45% if my math is right.
Surely you must be kidding. That period started off with the Recession of 1869-1870.

But that was followed by the so-called Long Depression from 1873 to 1879, the longest economic recession in U.S. history. Thousands of businesses failed, millions lost their jobs, unemployment in New York City was over 25%. Wages decreased by more than half, negating the deflation of the dollar. There were widespread food riots and violent strikes. It was the first international economic depression. It was the worst period of economic growth before the Great Depression of the 1930s.

Now the numerically illiterate will look at the raw GDP numbers for those years and cite the growth. However, that period also included a population increase of 20% as millions of people fled Europe for free land in the U.S. GDP per capita actually contracted. Even raw growth was slower than the decades preceding and following.
hazlitt777
Posts: 1033
Joined: Fri Aug 12, 2011 4:10 am
Location: Wisconsin

Re: Inflation is scary stuff.

Post by hazlitt777 »

Jack wrote:
hazlitt777 wrote:From 1869-79 there was an annual deflation of 3.8% and the economy roared. Imagine a $20 dollar bill sitting in the drawer going up 3.8% annually. What is that over 10 years? 45% if my math is right.
Surely you must be kidding. That period started off with the Recession of 1869-1870.

But that was followed by the so-called Long Depression from 1873 to 1879, the longest economic recession in U.S. history. Thousands of businesses failed, millions lost their jobs, unemployment in New York City was over 25%. Wages decreased by more than half, negating the deflation of the dollar. There were widespread food riots and violent strikes. It was the first international economic depression. It was the worst period of economic growth before the Great Depression of the 1930s.

Now the numerically illiterate will look at the raw GDP numbers for those years and cite the growth. However, that period also included a population increase of 20% as millions of people fled Europe for free land in the U.S. GDP per capita actually contracted. Even raw growth was slower than the decades preceding and following.
No I am not kidding. [OT link removed by admin LadyGeek]
User avatar
LadyGeek
Site Admin
Posts: 95686
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Inflation is scary stuff.

Post by LadyGeek »

This thread has run its course and is locked (neither personal nor actionable). See: A reminder that non-investing general comment threads are OT
- It must be personal. In other words, you must be asking about your own situation. You can also ask on behalf of someone specific, such as a family member.

- It must be actionable. You must be able to do something specific with the replies that will make a difference in your situation.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Locked