Is Inflation Dying of Old Age?

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packer16
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Re: Is Inflation Dying of Old Age?

Post by packer16 » Sat Jun 10, 2017 1:20 pm

The only comparable time in history for low interest rates was the late 1800s. Dutch 2.5% bonds & British 3% consols traded above par. During this time we had deflation despite rampant increase in money supply from new gold & silver deposits around the worlds. Gold production was about 1,000 ox per year in 1821 but increased to 20,000 oz per year by the 1890s. Another commonality is increases in productivity along with lack of widespread war, famine or epidemics. IMO without these three drivers of inflation (war, famine or epidemics) & continued technological improvements, there will be no inflation no matter what the money supply is. IMO these fundamental factors drive real in/deflation and monetary supply determines if the factors result in deflation or inflation in a given currency.

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Re: Is Inflation Dying of Old Age?

Post by Simplegift » Sat Jun 10, 2017 2:04 pm

Looking around for an analysis of real stock returns historically at various levels of inflation, this study surfaced:

Not only have U.S. real equity returns not suffered at low inflation levels (0% to 4%), they've thrived. Real returns were actually strongest historically during periods of mild deflation (0% to -2%). Of course, the future may not resemble the past.
Cordially, Todd

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Re: Is Inflation Dying of Old Age?

Post by jalbert » Sat Jun 10, 2017 2:54 pm

S&P500 "data" from before 1957 when the index was created is suspect, but the graph is interesting. Not surprising that stocks are doing well when inflation/deflation are tame enough not to be causing distortions from major shifts of value between creditors and debtors in real terms.

Here is Alan Greenspan's view from last February (with which I'm neither agreeing nor disagreeing):

http://www.telegraph.co.uk/business/201 ... -eurozone/
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Re: Is Inflation Dying of Old Age?

Post by itstoomuch » Sat Jun 10, 2017 2:56 pm

decreasing Inflation: is a concern that I had since college of the early 70's.
I try to target my Discretionary into areas that take advantage of low inflation, low consumption.
YMMV
Last edited by itstoomuch on Sat Jun 10, 2017 3:36 pm, edited 1 time in total.
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Re: Is Inflation Dying of Old Age?

Post by packer16 » Sat Jun 10, 2017 3:24 pm

Under the lower for longer scenario a portfolio of non-callable bonds to highly creditworthy counterparties would be best. One way to get this type of exposure is via NNN real estate. These in effect levered non-callable bond portfolios of the real estate tenants. There are some publicly traded ones with FFO yields of 5 to 9%. Some of these have rent increases & can do accretive acquisitions which drive rates into the low teens range. One I know of Broadstone Net Lease with an about 6% yield & a low double digit rate of return growth over the past few years.

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Re: Is Inflation Dying of Old Age?

Post by Snowjob » Wed Jun 14, 2017 12:33 pm

Valuethinker wrote:See Robert Gordon. Not sure he is entirely persuasive. I look around, and see some incredible technological changes going on. e.g. electric and autonomous vehicles. Maybe the impacts just haven't hit yet.

Agree running hygenic water (ie sewers), the steam train & the telegraph are as big changes to human life as have happened since perhaps beginning of agriculture.


I have the book about to start reading it. I can't remember who on this site actually recomended it to me. As of yet I still need to read "A Rose for Ecclesiastes" that you recommended me several years ago when we had been discussing Roger Zelazny, but its on the list :beer

I suppose I am a pessimist regarding the points I laid out, but its what I see. Granted I am western developed world focused as that is what I see and know.

I'm curious if the government mandated minimum wage increases will be what actually kick-starts inflation again. That external factor could do it as prices and the rest of the labor market will eventually adjust.

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Re: Is Inflation Dying of Old Age?

Post by Levett » Wed Jun 14, 2017 2:01 pm

Today's bond market response to a Fed hike (so far).

U.S. 10 Year 21/32 2.138
U.S. 30 Year 1 24/32 2.780

What inflation? ;-)

Lev

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Re: Is Inflation Dying of Old Age?

Post by Valuethinker » Wed Jun 14, 2017 4:56 pm

Snowjob wrote:
Valuethinker wrote:See Robert Gordon. Not sure he is entirely persuasive. I look around, and see some incredible technological changes going on. e.g. electric and autonomous vehicles. Maybe the impacts just haven't hit yet.

Agree running hygenic water (ie sewers), the steam train & the telegraph are as big changes to human life as have happened since perhaps beginning of agriculture.


I have the book about to start reading it. I can't remember who on this site actually recomended it to me. As of yet I still need to read "A Rose for Ecclesiastes" that you recommended me several years ago when we had been discussing Roger Zelazny, but its on the list :beer

I suppose I am a pessimist regarding the points I laid out, but its what I see. Granted I am western developed world focused as that is what I see and know.

I'm curious if the government mandated minimum wage increases will be what actually kick-starts inflation again. That external factor could do it as prices and the rest of the labor market will eventually adjust.


I'll tell you what the macreconomic models c. early 1980s said (when I studied macro ;-)).

If there is no increase in the overall inflation rate, due to Central Bank control of inflation, then a rise in one place means a fall somewhere else. A shift in relative prices of a factor of production (in this case, minimum wage labour) against other inputs may cause lower use of that input (ie unemployment) but it cannot in and of itself raise the general price level. Exceptions are if the Central Bank does not respond to the rising inflation signal *and* (most importantly) if the market's expectations come to be that the Central Bank will not do so.

Thus the increase in the minimum wage will mean a reduction in purchasing power by someone else along the chain. Companies cannot pass their costs on to their customers, so they either become more efficient (higher productivity), less profitable (in theory leading to exit from the market over time), or they reduce costs from their suppliers (including other labour).

My suspicion is that:

- some of it will lead to higher unemployment (it matters very much what rate is struck, and where-- $12.00 in a "hot" economy probably won't change much, because to attract new workers, service industries are having to pay that kind of money.

However in the case of workers with low marginal product (such as the young, or people from minorities that face discrimination or the learning disabled, ex convicts etc.) the unemployment impact could be higher, because the minimum wage will price them higher than their market clearing wage.

- some of it will lead to higher productivity - employers will invest in new capital equipment and training to increase the output from this more expensive labour force

- some of it will be seen in lower pay increases up the scale - there will be "compression" in some industries

Balanced against this:

- labour supply may increase, as people find the higher minimum wage attracts them back into the labour force. Definitely in the old 65 you may see this

Note that employers like WalMart (who are generally highly efficient within their industries) are, already, I believe, paying above the targetted minimum wage.

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Re: Is Inflation Dying of Old Age?

Post by Valuethinker » Wed Jun 14, 2017 4:57 pm

itstoomuch wrote:decreasing Inflation: is a concern that I had since college of the early 70's.
I try to target my Discretionary into areas that take advantage of low inflation, low consumption.
YMMV


?

Inflation soared from the early 70s until the late 70s? Without checking US CPI was something like 4% around 1970, and 13% in 1980?

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Re: Is Inflation Dying of Old Age?

Post by bigred77 » Wed Jun 14, 2017 5:49 pm

Simplegift wrote:Looking around for an analysis of real stock returns historically at various levels of inflation, this study surfaced:

Not only have U.S. real equity returns not suffered at low inflation levels (0% to 4%), they've thrived. Real returns were actually strongest historically during periods of mild deflation (0% to -2%). Of course, the future may not resemble the past.


This kind of makes sense to the narrative I have in my head. With extreme inflation/deflation come extreme uncertainty, which is no friend to equity markets, which is why it makes sense to me to see large negative real returns. I also question if annual real returns are the appropriate metric, since I assume companies can't reactively change prices instantaneously. You need longer time periods to reprice goods and services in appropriate nominal figures.

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Re: Is Inflation Dying of Old Age?

Post by itstoomuch » Wed Jun 14, 2017 7:25 pm

Valuethinker wrote:
itstoomuch wrote:decreasing Inflation: is a concern that I had since college of the early 70's.
I try to target my Discretionary into areas that take advantage of low inflation, low consumption.
YMMV

?
Inflation soared from the early 70s until the late 70s? Without checking US CPI was something like 4% around 1970, and 13% in 1980?

A lot of the inflation was contrived.
4 buckets: SS+pension;dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rental. Do OK any 2 bkts. LTCi. Own, not asset. Tax 25%. Early SS. FundingRatio (FR) >1.1 Age 67/70

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Re: Is Inflation Dying of Old Age?

Post by nedsaid » Thu Jun 15, 2017 2:42 pm

Simplegift, the one thing left out of your original post are Health Care costs which have been increasing faster than inflation. Also for seniors, health care costs tend to be a bigger budget item than for younger investors.
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Re: Is Inflation Dying of Old Age?

Post by garlandwhizzer » Thu Jun 15, 2017 4:06 pm

nedsaid wrote:
Simplegift, the one thing left out of your original post are Health Care costs which have been increasing faster than inflation. Also for seniors, health care costs tend to be a bigger budget item than for younger investors.


Nedsaid makes a good point. The problem is that the factors driving increasing health care costs and inflation do not typically come from seniors. Medicare controls reimbursement rates which sometimes fall below costs for doctors and hospitals who are not getting rich off medicare and medicaid. A large proportion of seniors cannot afford to pay for the costs of medical care over and above those costs covered by medicare. The elderly as a group consume more medical care than they are able to pay for which produces a lot of uncollectable debt. Over half of all medical costs spent on the average patient are spent in the last 6 months of his/her life, a stunning but true statistic.

Inflation in health care is driven primarily by those who pay in more and consume less, fully insured healthy workers, whose high insurance premiums allow cost shifting to absorb the slack from unreimbursed and under-reimbursed medical care to the elderly and indigent. As population demographics shift more toward the elderly, relatively fewer young healthy workers will be subsidizing increasing elderly/indigent care, and health care inflation may hit a rock wall. Medical costs increase, but who's going to pay for it?

What drives corporate profits and inflation in health care is not costs but revenues which are typically paid by third parties. There is no economic motive to cut medical care costs either among providers who offer goods and services to supply medical care or among the consumers who need medical care. It is in the economic interests of both groups to maximize spending because neither is directly paying for it, instead a third party is. Both are insulated individually from the collective need to reduce health care costs. One other factor that increases costs is the medical malpractice climate which threatens massive lawsuits if expensive tests, etc., are not done and the patient turns out to be the one in five thousand for whom that test would have made a big difference. In that case the doctor gets sued and to cover that possibility he must always order that test and also pay for malpractice insurance.

From Forbes magazine:
A new study reveals that the cost of medical malpractice in the United States is running at about $55.6 billion a year - $45.6 billion of which is spent on defensive medicine practiced by physicians seeking to stay clear of lawsuits.


Health care delivery, costs, inflation, etc., are very complex topics and involve very difficult tradeoffs which is why it is now so expensive in the US and why many in other countries are also unhappy with it. Bottom line is that delivering maximal health care to all, a laudable goal in principle, costs massive amounts of money and no one wants to pay for it. We can either pay a lot more and get that, or we can in some way reduce or ration the the amount of care we deliver, hopefully in a rational and sympathetic way. We currently do that in the US on economic grounds, with many millions without assets or insurance receiving lower quality care in aggregate. In socialized medicine states, all are covered but there are long waiting lists and wait times for elective procedures and tests. Everyone everywhere has a complaint about medical care.

Those who optimistically invest in health care expecting long term health care sector outperformance should IMHO bear in mind that there may be some clouds on that horizon. One risk is increased governmental targeting of big pharma and medical device makers whose profit margins are generous to say the least. Medicare and medicaid reimbursements may also be reduced to doctors and hospitals relative to their increased costs for delivery goods and services. Universal health care could at some point happen in the US, all of which might affect both corporate profits of health care stocks and inflation in health care costs. Our society may collectively decide that it is better to some rationing of health care rather than overburden the economy with health care costs to the exclusion of other areas. That is already being done for the uninsured and the indigent which is our current default setting.

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Re: Is Inflation Dying of Old Age?

Post by Simplegift » Thu Jun 15, 2017 4:24 pm

nedsaid wrote:Simplegift, the one thing left out of your original post are Health Care costs which have been increasing faster than inflation. Also for seniors, health care costs tend to be a bigger budget item than for younger investors.

Per capita U.S. health care spending has certainly been increasing at a faster rate than the overall inflation rate. However over the last 40 year, the rate of increase in health care costs has been falling, right along with the declining rate of inflation in general (chart below). And this is while the population age 65 and older in the U.S. has been steadily increasing.

No doubt, a rise in general inflation rates in the future would help drive health care costs higher, just like an other segment of the economy. But whether the increasing health care costs of seniors in an increasingly aging population would start to drive inflation in general higher across the whole economy — this I’m not so sure about. One way to answer this question might be to look at Japan in recent decades — a country with the most aged population on the planet, but with continuing low inflation.
Cordially, Todd

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Re: Is Inflation Dying of Old Age?

Post by nedsaid » Thu Jun 15, 2017 4:44 pm

Garland, as a retired physician you know these issues backwards and forwards.

The problem is that the public has unrealistic expectations of health insurance and thus we have created a problem that cannot be fixed until the expectations get to be more realistic. Insurance is the pricing of risk and transferring that risk to someone else. The individual has to decide how much risk he or she wants to assume for his or herself and transfer the remainder to another entity in exchange for a premium, a tax, or both. In other words, individuals should pay for the small stuff and insurance plans pay for the big stuff. You want insurance so that a catastrophic health event doesn't wipe you out financially.

The expectation is that the insurance plan pay for most everything and holy cain is raised if we have to pay co-pays and deductibles. The public wants pre-paid healthcare and not true insurance. It is also an economic law that as price decreases that demand increases. So we create a situation of unlimited demand as we ask the insurance companies to take on unlimited risk and then we wonder why premium increases are seemingly unlimited.

People also have to understand that private commercial insurance subsidizes Medicare patients a little bit, Medicaid patients a lot, and folks without insurance 100%. Medical providers get their money from those who can pay. This is a factor in the big increases in commercial insurance premiums and the goofy prices that providers charge.

Of course, reality rather than consumer expectations win out over time and that is why we are seeing not only higher premiums but also higher co-pays and deductibles.

The problem is that there are no perfect solutions. A big problem is that we tend to have more medical problems as we get older. As one wiseacre commented, being over the age of 50 is a pre-existing condition. So society has to figure out a way to take care of the elderly, whose medical expenses are higher and whose ability to pay for higher and higher premiums is also limited.
This is why we have Medicare.

We also want a way for people to get needed care early enough so that smaller problems don't balloon into more serious and expensive problems. Another issue is dealing with chronic conditions such as diabetes. There is also a variety in people's economic circumstances. No easy answers.

Pretty much, we need to have a national discussion on this issue. There are drawbacks to whatever solutions that are proposed. There is no perfect solution. But that is beyond the scope of this forum as this ventures into politics which is verboten here.
Last edited by nedsaid on Thu Jun 15, 2017 4:53 pm, edited 1 time in total.
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Re: Is Inflation Dying of Old Age?

Post by nedsaid » Thu Jun 15, 2017 4:52 pm

Simplegift, thanks for your post. Certainly declining inflation rates for healthcare is good news. I would be interested in whatever data could be provided from a country like Japan. What is Japan's experience with healthcare inflation in light of its rapidly aging population? I am sure there is a knowledgeable poster somewhere who can shed more light on this.
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Re: Is Inflation Dying of Old Age?

Post by rgs92 » Thu Jun 15, 2017 8:46 pm

Awesome post Nedsaid. Maybe the best and most reasoned and concise thing I've read on the healthcare subject. Thanks.

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Re: Is Inflation Dying of Old Age?

Post by NibbanaBanana » Fri Jun 16, 2017 7:46 am

nedsaid wrote:
The problem is that there are no perfect solutions. A big problem is that we tend to have more medical problems as we get older. As one wiseacre commented, being over the age of 50 is a pre-existing condition. So society has to figure out a way to take care of the elderly, whose medical expenses are higher and whose ability to pay for higher and higher premiums is also limited.
This is why we have Medicare.

We also want a way for people to get needed care early enough so that smaller problems don't balloon into more serious and expensive problems. Another issue is dealing with chronic conditions such as diabetes. There is also a variety in people's economic circumstances. No easy answers.

Pretty much, we need to have a national discussion on this issue. There are drawbacks to whatever solutions that are proposed. There is no perfect solution. But that is beyond the scope of this forum as this ventures into politics which is verboten here.


There are very near perfect solutions that would solve our healthcare crisis overnight. The problem is that the whole healthcare system operates for it's own benefit. The healthcare system has absolutely no interest in preventing disease. Your cardiologist went to school for 10 years to learn to treat heart disease with drugs and surgery. Are they going to investigate the hundreds of clinical studies published in peer review journals that prove that heart disease can be prevented and reversed through simple lifestyle changes? Well, the answer is no. Type 2 is another that is preventible and reversible through lifestyle changes alone. Our major costly, chronic diseases are all due to lifestyle. Preventable and in many cases reversible through lifestyle. Just open your eyes and observe the abysmal physical condition of the American public. See nutritionfacts.org.

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Re: Is Inflation Dying of Old Age?

Post by Valuethinker » Fri Jun 16, 2017 8:20 am

nedsaid wrote:Garland, as a retired physician you know these issues backwards and forwards.

The problem is that the public has unrealistic expectations of health insurance and thus we have created a problem that cannot be fixed until the expectations get to be more realistic. Insurance is the pricing of risk and transferring that risk to someone else. The individual has to decide how much risk he or she wants to assume for his or herself and transfer the remainder to another entity in exchange for a premium, a tax, or both. In other words, individuals should pay for the small stuff and insurance plans pay for the big stuff. You want insurance so that a catastrophic health event doesn't wipe you out financially.

The expectation is that the insurance plan pay for most everything and holy cain is raised if we have to pay co-pays and deductibles. The public wants pre-paid healthcare and not true insurance. It is also an economic law that as price decreases that demand increases. So we create a situation of unlimited demand as we ask the insurance companies to take on unlimited risk and then we wonder why premium increases are seemingly unlimited.


Strangely, these things are almost unknown in other developed countries (depends which one). I had to look up "co pays" when I first encountered it.

Yet healthcare costs in the US are far and away higher than any other developed country.

"prepaid healthcare and not true insurance". Not sure what you mean? I pay taxes, I get healthcare. That's how it works in the UK (and Canada, and Sweden). Germany and France somewhat different-- your health insurance comes via the employer *unless* for whatever reason that is not the case (self employed, retired, unemployed etc.) in which case it comes from the state. US system was (under ACA) evolving towards the Swiss system (which is somewhat similar).

What do you mean?

People also have to understand that private commercial insurance subsidizes Medicare patients a little bit, Medicaid patients a lot, and folks without insurance 100%. Medical providers get their money from those who can pay. This is a factor in the big increases in commercial insurance premiums and the goofy prices that providers charge.


Any evidence for that? I believe Medicare is legally restricted on its ability to negotiate discounts? I know that is true for Medicare drug benefits-- Schedule D.

I believe it is, in fact, those who are uninsured or who are not members of large plans that are charged far higher rates, and in effect subsidize the large private schemes that can negotiate lower rates?

Of course, reality rather than consumer expectations win out over time and that is why we are seeing not only higher premiums but also higher co-pays and deductibles.


Or there's a system design problem, that encourages cost growth.

The problem is that there are no perfect solutions. A big problem is that we tend to have more medical problems as we get older. As one wiseacre commented, being over the age of 50 is a pre-existing condition. So society has to figure out a way to take care of the elderly, whose medical expenses are higher and whose ability to pay for higher and higher premiums is also limited.
This is why we have Medicare.


And that's why countries have single payer. You need to have the widest risk pool you can. If you die young, of course, you "lose" from this arrangement. But if you get sick young (chronic condition) or, as most of us hope to, you live to be old, then, well, you "win".

To me, health insurance is a bit like military conscription, universal literacy, obeying traffic laws (I would add municipal water standards, compulsory vaccination, pilots licensing, environmental effluent restrictions etc.-- if you read your newspapers, fire regs on blocks of flats, too). It's part of the raison d'etre and state of being of the modern nation state. The line "a state is an insurance company plus an army and police force" is a good description of us. One could add Queen, flag and Country-- but an American might amend that slightly ;-).

We also want a way for people to get needed care early enough so that smaller problems don't balloon into more serious and expensive problems. Another issue is dealing with chronic conditions such as diabetes. There is also a variety in people's economic circumstances. No easy answers.


http://washingtonmonthly.com/magazine/m ... care-idea/

I thought the above article was very interesting.

Pretty much, we need to have a national discussion on this issue. There are drawbacks to whatever solutions that are proposed. There is no perfect solution. But that is beyond the scope of this forum as this ventures into politics which is verboten here.


Quite. But you went down that route? So it's worth raising the basic problems with the stylized facts?
Last edited by Valuethinker on Fri Jun 16, 2017 8:24 am, edited 1 time in total.

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Re: Is Inflation Dying of Old Age?

Post by Valuethinker » Fri Jun 16, 2017 8:21 am

rgs92 wrote:Awesome post Nedsaid. Maybe the best and most reasoned and concise thing I've read on the healthcare subject. Thanks.


I think there are a number of issues with it, taking a non-US perspective. I have raised those.

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Re: Is Inflation Dying of Old Age?

Post by Valuethinker » Fri Jun 16, 2017 8:41 am

NibbanaBanana wrote:
nedsaid wrote:
The problem is that there are no perfect solutions. A big problem is that we tend to have more medical problems as we get older. As one wiseacre commented, being over the age of 50 is a pre-existing condition. So society has to figure out a way to take care of the elderly, whose medical expenses are higher and whose ability to pay for higher and higher premiums is also limited.
This is why we have Medicare.

We also want a way for people to get needed care early enough so that smaller problems don't balloon into more serious and expensive problems. Another issue is dealing with chronic conditions such as diabetes. There is also a variety in people's economic circumstances. No easy answers.


The impact of social class and income on health is often seriously understated. More unequal societies have (much) worse health outcomes.

http://washingtonmonthly.com/magazine/m ... care-idea/

I thought this was quite interesting.
Pretty much, we need to have a national discussion on this issue. There are drawbacks to whatever solutions that are proposed. There is no perfect solution. But that is beyond the scope of this forum as this ventures into politics which is verboten here.


There are very near perfect solutions that would solve our healthcare crisis overnight. The problem is that the whole healthcare system operates for it's own benefit. The healthcare system has absolutely no interest in preventing disease. Your cardiologist went to school for 10 years to learn to treat heart disease with drugs and surgery. Are they going to investigate the hundreds of clinical studies published in peer review journals that prove that heart disease can be prevented and reversed through simple lifestyle changes?


Actually. It can't, AFAIK. It can in that stopping smoking (and avoiding excessive consumption of alcohol) really can. Dietary change? Not much evidence of that, I don't think. In the sense that you can genuinely make it worse by a very bad diet, but there's little evidence that a good diet moves you off your genetic risk by much.

Unfortunately your cardiac health is in your genes. You can make it worse, but you can't make it much better. The good news is that most cardiac illness hits after 65, when there is insurance. And that dying of a heart attack is a lot less horrible (to the extent we can say such things, the dead tell no tales) than say metastasized prostate cancer.

It may be that the obesity epidemic causes soaring cardio vascular illness rates in future populations (it's too soon to have a big impact on the over 65s) but at the moment such rates are, AFAIK, still falling due to the impact of reductions in adult smoking (from over half the population in the early 1960s to c. 20% now).

Well, the answer is no. Type 2 is another that is preventible and reversible through lifestyle changes alone.


We really don't know why Type 2 diabetes has exploded. A good guess is the amount of sugar in processed food and drink (of which we eat more of). But it's exploded everywhere, not just in countries with a bad obesity problem. Is there an environmental component? (for example widespread home heating?).

Our major costly, chronic diseases are all due to lifestyle. Preventable and in many cases reversible through lifestyle. Just open your eyes and observe the abysmal physical condition of the American public. See nutritionfacts.org.


The problem with healthcare is that something like 80% of expenditure is something like 20% of people (I suspect it's even more skewed than that).

I suspect the disease that is truly the most expensive (I would guess 1/5 of all healthcare dollars? More?) is cancer. And there are lifestyle related cancers (e.g. smoking) and there are environmentally related cancers (the pace of new chemicals introduced dwarfs our ability to understand the impacts).

But read "The Emperor of all Maladies". Cancer is fundamental, it seems, to us as genetic beings. The propensity for error in reproduction of cells which leads to illness and death. We live longer than evolution has any need for us and so we are born containing our own self destruction.

https://www.amazon.com/Emperor-All-Mala ... 1439170916

There are also undoubtedly viral cancers. Right now the Gilead drug for Hepatitis C (which leads to liver cancer) is £30,000 a treatment. There's also a latest research report that although it cures the symptoms (blood antibodies?) it doesn't actually cure the disease (which resides in tissues). So the drug might be ineffective.

Cancer is what we are, as living beings. And if we choose to treat it, that costs *a lot*. The UK government has just agreed to buy a drug that grants 6 months of additional life to metastasized breast cancer patients (much higher quality life). Costs £90k (about USD 150k) per patient retail (agreed price is commercially secret) but meets the UK government's National Institute of Clinical Effectiveness (NICE) criteria.

NICE puts a value on 1 year of quality life extension of £30k (about USD 50k). That sounds cold, but NICE is globally admired. The actual NICE evaluations are done by committees that include medical people, medical ethicists/ philosophers, economists.

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Re: Is Inflation Dying of Old Age?

Post by logicteach » Fri Jun 16, 2017 9:50 am

FrugalInvestor wrote:Eh, I've heard it all before. "This time it's different!" Usually it isn't. Time will tell but I won't assume that inflation is gone.



This!

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Re: Is Inflation Dying of Old Age?

Post by nedsaid » Fri Jun 16, 2017 12:24 pm

Valuethinker wrote:
nedsaid wrote:Garland, as a retired physician you know these issues backwards and forwards.

The problem is that the public has unrealistic expectations of health insurance and thus we have created a problem that cannot be fixed until the expectations get to be more realistic. Insurance is the pricing of risk and transferring that risk to someone else. The individual has to decide how much risk he or she wants to assume for his or herself and transfer the remainder to another entity in exchange for a premium, a tax, or both. In other words, individuals should pay for the small stuff and insurance plans pay for the big stuff. You want insurance so that a catastrophic health event doesn't wipe you out financially.

The expectation is that the insurance plan pay for most everything and holy cain is raised if we have to pay co-pays and deductibles. The public wants pre-paid healthcare and not true insurance. It is also an economic law that as price decreases that demand increases. So we create a situation of unlimited demand as we ask the insurance companies to take on unlimited risk and then we wonder why premium increases are seemingly unlimited.


Strangely, these things are almost unknown in other developed countries (depends which one). I had to look up "co pays" when I first encountered it.

Nedsaid: Valuethinker, I have worked as an accountant in healthcare in the United States for over 16 years. A lot of my time was spent working with the three billing offices in our healthcare system which were hospital billing, physician billing, and home health. I know an awful lot about how healthcare is financed here in the United States. Most people here have only a vague idea how all this works.

Yet healthcare costs in the US are far and away higher than any other developed country.

Nedsaid: Yes, but we don't have to wait 6 months for a heart bypass or 4 1/2 years for a knee replacement. It is an irony that our healthcare costs keep rising as our Government throws more and more money at it. There are also huge compliance costs to follow complex laws and regulations. Our healthcare costs are high because the public demands it and so far we could afford it. We expect the latest, the greatest, the newest treatment and the heroic measures to preserve life no matter what the cost.

"prepaid healthcare and not true insurance". Not sure what you mean? I pay taxes, I get healthcare. That's how it works in the UK (and Canada, and Sweden). Germany and France somewhat different-- your health insurance comes via the employer *unless* for whatever reason that is not the case (self employed, retired, unemployed etc.) in which case it comes from the state. US system was (under ACA) evolving towards the Swiss system (which is somewhat similar).

What do you mean?

Nedsaid: Re-read Garland Whizzer's post above and re-read my most. I explained very thoroughly the concept of insurance and Garland gave a good explanation for the reason of rising healthcare costs. Do you understand what actuaries do and how risk is priced? In a single payer system, there is no market pricing or market discipline. The government sets the prices and pretty much rations care. When everything is "free" demand zooms beyond what can be provided, hence rationing.

People also have to understand that private commercial insurance subsidizes Medicare patients a little bit, Medicaid patients a lot, and folks without insurance 100%. Medical providers get their money from those who can pay. This is a factor in the big increases in commercial insurance premiums and the goofy prices that providers charge.


Any evidence for that? I believe Medicare is legally restricted on its ability to negotiate discounts? I know that is true for Medicare drug benefits-- Schedule D.

Nedsaid: Yes, I worked in healthcare for many years in finance. I know what I am talking about. Commercial insurance subsidizes government insurance. Providers lose money on every Medicaid patient that walks in the door. Providers almost break even on Medicare. In essence, to overcome the losses providers incur from Medicaid and uninsured patients, they overcharge those with Commercial insurance.

I believe it is, in fact, those who are uninsured or who are not members of large plans that are charged far higher rates, and in effect subsidize the large private schemes that can negotiate lower rates?

Nedsaid: There was a big lawsuit over this. Individuals now are supposed get the same discounts from providers that insurance companies get. It was a big issue when I was employed at the Hospital system. The exchanges set up under the Affordable Care Act to sell individuals insurance at group rates. Hasn't worked as well as hoped as younger people forgo the insurance. Pretty much when faced with the choice of health insurance and beer, younger people without health insurance choose beer.

Of course, reality rather than consumer expectations win out over time and that is why we are seeing not only higher premiums but also higher co-pays and deductibles.


Or there's a system design problem, that encourages cost growth.

The problem is that there are no perfect solutions. A big problem is that we tend to have more medical problems as we get older. As one wiseacre commented, being over the age of 50 is a pre-existing condition. So society has to figure out a way to take care of the elderly, whose medical expenses are higher and whose ability to pay for higher and higher premiums is also limited.
This is why we have Medicare.


And that's why countries have single payer. You need to have the widest risk pool you can. If you die young, of course, you "lose" from this arrangement. But if you get sick young (chronic condition) or, as most of us hope to, you live to be old, then, well, you "win".

Nedsaid: The problem with single payer is that you set up a monopoly with zero competition. Free services encourage unlimited demand so to deal with that services have to be rationed. The public here in America would not tolerate the long wait times for certain procedures. The public doesn't like rationing so the demand is for more and more spending to "fix" a problem that can't be fixed. This is what happens when central planning rather than market forces determine supply and pricing. When the price is free, demand is unlimited. This is why the U.K. almost doesn't have a military anymore, Britannia unfortunately rules the English Channel and that is about it. The military, though competent is just too small. No amount of money will fix the shortages of healthcare services. Literally a bottomless pit has been created. Until the public is made to pay directly for the smaller items of healthcare and insurance reserved for larger expenses, a problem has been created that just cannot be fixed.

To me, health insurance is a bit like military conscription, universal literacy, obeying traffic laws (I would add municipal water standards, compulsory vaccination, pilots licensing, environmental effluent restrictions etc.-- if you read your newspapers, fire regs on blocks of flats, too). It's part of the raison d'etre and state of being of the modern nation state. The line "a state is an insurance company plus an army and police force" is a good description of us. One could add Queen, flag and Country-- but an American might amend that slightly ;-).

Nedsaid: People have to realize that there are trade-offs. A classmate of mine now lives in the UK and I was just appalled that she had to wait 4 1/2 years for a knee replacement and then she ran into a lot of complications after her surgery. I was appalled at the things she wrote on her Facebook page, I told her that she should have come home to the US and paid out of pocket to have this done. She probably should have been admitted to the hospital for a short time for observation. I can tell you that her care would have been a lot better at my hospital system.

In my mind, the private sector cannot solve the whole problem. Obviously, trying to insure the elderly would be hugely unprofitable for private companies. Obviously the poor can't afford the insurance. There are good proposals for the government being the backstop for conditions that are rare but very expensive that are impossible for insurance companies to cover at a reasonable price.

The problem is that everything in healthcare in the United States is getting bigger and bigger. We don't want a monopoly in the Insurance market and oligopolies among the providers. We need fierce competition to bring prices down and instead we are building wider and wider moats around bigger and bigger healthcare providers. What will happen is that the large providers will spend their money on lobbying and not so much on making themselves better than the competition.


We also want a way for people to get needed care early enough so that smaller problems don't balloon into more serious and expensive problems. Another issue is dealing with chronic conditions such as diabetes. There is also a variety in people's economic circumstances. No easy answers.


http://washingtonmonthly.com/magazine/m ... care-idea/

I thought the above article was very interesting.

Pretty much, we need to have a national discussion on this issue. There are drawbacks to whatever solutions that are proposed. There is no perfect solution. But that is beyond the scope of this forum as this ventures into politics which is verboten here.


Quite. But you went down that route? So it's worth raising the basic problems with the stylized facts?
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Re: Is Inflation Dying of Old Age?

Post by nedsaid » Fri Jun 16, 2017 12:58 pm

NibbanaBanana wrote:There are very near perfect solutions that would solve our healthcare crisis overnight. The problem is that the whole healthcare system operates for it's own benefit. The healthcare system has absolutely no interest in preventing disease. Your cardiologist went to school for 10 years to learn to treat heart disease with drugs and surgery. Are they going to investigate the hundreds of clinical studies published in peer review journals that prove that heart disease can be prevented and reversed through simple lifestyle changes? Well, the answer is no. Type 2 is another that is preventible and reversible through lifestyle changes alone. Our major costly, chronic diseases are all due to lifestyle. Preventable and in many cases reversible through lifestyle. Just open your eyes and observe the abysmal physical condition of the American public. See nutritionfacts.org.


Uh, no. The problem is that beautiful solutions are crafted to solve the problem of high healthcare costs but they don't take into consideration human nature and human behavior. People smoke, people overeat, people don't exercise, people lie to their doctors. Quite often, folks who know the right thing to do choose not to. The Affordable Care Act was a laudable attempt to address some of these problems but the exchanges ran into problems when younger people without employer provided insurance didn't buy insurance in the numbers expected. Given a choice between health insurance and beer, many younger people without health insurance will choose beer.

It is true that the incentives for healthcare providers need to be change. But a lot of this is due to unrealistic expectations from the public. Technology and the high skill level of our healthcare professionals enable very remarkable things to be done. But there are limits to what medicine can do. It seems that people would rather rely on medical miracles than live healthier lifestyles.

Actually, I used to joke with one of our internal consultants in my healthcare system that the way to reduce costs would be for the government to run ads and encourage everyone to take up smoking. There would be up front costs but people would die in their sixties and earlier seventies rather than lingering into their eighties and nineties. Treating the cancer would be expensive but less so than the more expensive conditions that show up as people get even older. Think of all the pension costs that would be saved. Of course, I would never advocate this and would not wish anyone a shorter life. I want people to maximize their lifespans.

Healthier lifestyles to a point delay the inevitable. It is expensive to keep people in their eighties and their nineties going. But this is a good problem as we want people to live longer and healthier. There is a point at which healthy lifestyles delay expensive conditions and it probably won't reduce costs as much as is hoped. An illustration of this is my own father, had he kept smoking he would have probably died in his late fifties or into the sixties. He is now eighty-seven and he has had a lot of things done to keep him going. His total healthcare bill over his lifetime would have been a lot less than if he had died years earlier. I want my parents to stick around and my suspicion is that others feel the same way about their own parents. The process of living is much more expensive than death. His giving up smoking in his later forties eventually cost society a lot in Social Security payments, his Medicare insurance, and the medical procedures and technology that keep him going. Isn't that what we want? If all we were concerned about was cost, then early death is the answer. But that is not what any of us want.
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Re: Is Inflation Dying of Old Age?

Post by nedsaid » Fri Jun 16, 2017 1:33 pm

Valuethinker wrote:
NICE puts a value on 1 year of quality life extension of £30k (about USD 50k). That sounds cold, but NICE is globally admired. The actual NICE evaluations are done by committees that include medical people, medical ethicists/ philosophers, economists.


It sounds cold because it is cold. I do not admire NICE any more than I admired Ezekiel Emanuel.

The problem with top down planning is that you get oversupply of things people don't want as much and shortages of things people want and need. Nothing beats good old supply and demand. We are already experiencing an increasing shortage of Doctors, particularly Primary Care.

It is a darned shame that community hospitals cannot operate now as stand alone entities, they have to be a part of a larger system. The individual Doctor's practice almost doesn't exist anymore, private practices are getting bigger and bigger. As things get bigger and bigger, the decision making gets to be further and further removed from the local level. Local communities don't have control of their own destiny any more. It gets to be more about the dollar, large and distant bureaucracies and less and less caring. This is not a good thing. Ultimately, the interests of the patient are no longer paramount.

In my opinion, this will lead to less and less choice and less innovation both of which we badly need.
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Re: Is Inflation Dying of Old Age?

Post by CurlyDave » Mon Jun 19, 2017 1:55 am

HomerJ wrote:...The absolute easiest way for any government to handle national debt is to inflate it away...


I completely agree, which is why I have always invested counting on inflation, and have greatly benefited from this.

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Re: Is Inflation Dying of Old Age?

Post by Valuethinker » Mon Jun 19, 2017 3:10 am

itstoomuch wrote:
Valuethinker wrote:
itstoomuch wrote:decreasing Inflation: is a concern that I had since college of the early 70's.
I try to target my Discretionary into areas that take advantage of low inflation, low consumption.
YMMV

?
Inflation soared from the early 70s until the late 70s? Without checking US CPI was something like 4% around 1970, and 13% in 1980?

A lot of the inflation was contrived.


I don't know what you mean? It sounds like a conspiracy theory and I certainly don't subscribe to it, nor does any standard textbook about the time.

Worth reading Marc Levinson's latest book on the 1970s -- good non academic economic history.

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Re: Is Inflation Dying of Old Age?

Post by Valuethinker » Mon Jun 19, 2017 3:15 am

nedsaid wrote:
Valuethinker wrote:
NICE puts a value on 1 year of quality life extension of £30k (about USD 50k). That sounds cold, but NICE is globally admired. The actual NICE evaluations are done by committees that include medical people, medical ethicists/ philosophers, economists.


It sounds cold because it is cold. I do not admire NICE any more than I admired Ezekiel Emanuel.


All medical systems have to make these choices. There's a lot of good in the NICE approach.

No healthcare system can afford *all* the drugs it might use. The costs of these unique cancer treatments can run up to $100k+ per year of life extension (note this is not cure, this is life extension). The US also rations drugs-- if you have more money, you can afford more drugs.

"copays" and "deductibles" are essentially unknown here. People don't die because they don't have enough money to pay for drugs.

Note that user fees generally (copays & deductibles in your language) have been shown not to reduce healthcare costs in the long run-- because it means too many people avoid treatment in the early stages of diseases, or maintenance treatment for chronic diseases. By the time they reach the healthcare system, they are in much worse shape. This is generally true of having an uninsured population.

By having Medicare, the US has accepted this-- single payer for those over 65, in essence. As retirement medical coverage becomes an increasingly scarce benefit, (which is my impression is what is happening in the USA?), that gets more important.

The problem with top down planning is that you get oversupply of things people don't want as much and shortages of things people want and need. Nothing beats good old supply and demand. We are already experiencing an increasing shortage of Doctors, particularly Primary Care.


You need to read Kenneth Arrow's paper on Health Care, which invented the field of health care economics. The consumer does not control the demand curve in health care, the provider does. It's a classic case of imperfect information.

https://aheblog.com/2017/03/07/kenneth- ... reciation/

https://web.stanford.edu/~jay/health_cl ... /arrow.pdf

http://www.jstor.org/stable/1812044?seq ... b_contents

http://www.who.int/bulletin/volumes/82/2/PHCC.pdf

It is a darned shame that community hospitals cannot operate now as stand alone entities, they have to be a part of a larger system. The individual Doctor's practice almost doesn't exist anymore, private practices are getting bigger and bigger. As things get bigger and bigger, the decision making gets to be further and further removed from the local level. Local communities don't have control of their own destiny any more. It gets to be more about the dollar, large and distant bureaucracies and less and less caring. This is not a good thing. Ultimately, the interests of the patient are no longer paramount.

In my opinion, this will lead to less and less choice and less innovation both of which we badly need.


In fact, I think it's the big US healthcare providers that have tended to be the most innovative? Kaiser Permanente in California? The VA itself. Both taking a much more life cycle view of the healthcare consumer.

See also the article re Stanford health care I referenced.

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Re: Is Inflation Dying of Old Age?

Post by NibbanaBanana » Mon Jun 19, 2017 7:47 am

Valuethinker wrote:
Actually. It can't, AFAIK. It can in that stopping smoking (and avoiding excessive consumption of alcohol) really can. Dietary change? Not much evidence of that, I don't think. In the sense that you can genuinely make it worse by a very bad diet, but there's little evidence that a good diet moves you off your genetic risk by much.


In fact, I think it's the big US healthcare providers that have tended to be the most innovative? Kaiser Permanente in California? The VA itself. Both taking a much more life cycle view of the healthcare consumer.



Well that's funny. Because Kaiser Permanente says that diet is the health care crisis. Maybe you should look at what the mountains of scientific evidence actually say. Kaiser Permanente has done just that and recommends a whole food plant based diet to prevent and heal chronic disease.

https://nutritionfacts.org/video/what-d ... recommend/

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Re: Is Inflation Dying of Old Age?

Post by nedsaid » Mon Jun 19, 2017 12:14 pm

Again, Valuethinker, re-read Garland Whizzer's post above and carefully re-read my posts. Probably your entire life you have lived under socialized medicine and cannot image life any other way. What I am pointing out is that there are trade-offs and trade-offs that Americans would not tolerate. Again, do you understand that insurance is a form of risk sharing? Do you understand what actuaries do?

We were told that a big benefit of the Affordable Care Act is that we would get all these wonderful preventative tests. In actual fact, the "experts" started telling us that women really don't need annual mammograms and that men really don't need the annual PSA screening for Prostate cancer. It was the opposite of what experts had told us before, that all would benefit from rigorous screening and prevention. It was the bait and switch.

Also, the Affordable Care Act has not brought down premiums as promised. Premiums on the exchanges have gone up dramatically, my own premiums on the exchange went up over 40% last year.

Seniors have the option of purchasing additional private insurance on top of Medicare. This is something probably not understood in the United Kingdom. Even for many senior citizens, their health insurance is a combination of public and private. Of course those who cannot afford the supplemental insurance are on government only.

Another misconception that needs to be cleared up is that there is no unified Healthcare system in the United States unlike the UK. Our healthcare was started from the bottom up, for example communities organizing their own community hospitals. Or religious organizations that saw a need and established hospitals and clinics. Our insurance is regulated mostly at the state level. As of now, US healthcare is a patchwork of private, not-for-profit, and public healthcare unlike the UK where the government owns the providers and is the insurance company.

The United States is not the United Kingdom. Our insurance systems are much different and most of our providers are in private hands. Totally apples to orange comparisons.

I am sure that the National Health Service in the UK does some things very well. But there are trade-offs, one of which being wait times for certain procedures. Probably routine and preventative care are done well by NHS. No system is without faults. At least before the Affordable Care Act, medical care in the US was expensive but it was plentiful and consumers had choice. I can tell you that providers write off huge amounts of bills for the uninsured. What we need to do is get more people insured and hopefully with private, commercial insurance. My concern is that if government takes over the insurance function that care will be rationed, consumer choice limited, innovation will be stifled and pretty much an end to the patient/doctor relationship which is already under strain.

It is probably difficult for you to understand why many Americans do not want single payer health insurance in the United States. You have never known anything else.
Last edited by nedsaid on Mon Jun 19, 2017 1:54 pm, edited 3 times in total.
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Re: Is Inflation Dying of Old Age?

Post by protagonist » Mon Jun 19, 2017 12:40 pm

Spurious correlations can be found everywhere, and make for easy publications. A quick glance at a graph on this page suggests to me a stronger correlation between per capita cheese consumption and the number of people who died by becoming entangled in their bedsheets than the one OP presented: http://www.tylervigen.com/spurious-correlations
Perhaps it is because people go to bed with cheese on their breath and their partners strangle them? Or maybe their hands are sticky so when they roll over and they get hopelessly entangled?
The strong correlation between people drowning when jumping in a pool and the number of films N. Cage appeared in, on the other hand, has an easy explanation. I would consider suicide if I had to watch 3 Nicolas Cage films in one year.

If there is any cause-and-effect to be possibly surmised from the graph of inflation, I would much prefer the above poster's explanation of wartime. Or, perhaps even a better reason would be a normal cycle. Occam's Razor.

(an aside.....Does anybody know why they call it a razor? It would be a good name for a new, simpler model with only one blade, no? Please PM me with any answers as to why they call it a razor so as not to derail OP's thread).

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Re: Is Inflation Dying of Old Age?

Post by nedsaid » Mon Jun 19, 2017 12:51 pm

protagonist wrote:Spurious correlations can be found everywhere, and make for easy publications. A quick glance at a graph on this page suggests to me a stronger correlation between per capita cheese consumption and the number of people who died by becoming entangled in their bedsheets than the one OP presented: http://www.tylervigen.com/spurious-correlations
Perhaps it is because people go to bed with cheese on their breath and their partners strangle them? Or maybe their hands are sticky so when they roll over and they get hopelessly entangled?
The strong correlation between people drowning when jumping in a pool and the number of films N. Cage appeared in, on the other hand, has an easy explanation. I would consider suicide if I had to watch 3 Nicolas Cage films in one year.

If there is any cause-and-effect to be possibly surmised from the graph of inflation, I would much prefer the above poster's explanation of wartime. Or, perhaps even a better reason would be a normal cycle. Occam's Razor.

(an aside.....Does anybody know why they call it a razor? It would be a good name for a new, simpler model with only one blade, no? Please PM me with any answers as to why they call it a razor so as not to derail OP's thread).


Pretty much the argument is that as the population ages that spending will decrease. I read somewhere that spending peaks at about 46 years of age. A lot of this has to do with the raising of children. The exception to the trend of decreased spending with age would be healthcare spending. The argument would continue that if per capita spending is decreasing because of an aging population that there would be thus less pressures that would cause inflation.

That is the argument anyway. We will see if that actually works out. Japan is the most dramatic example as birthrates are low, the population is both aging and starting to shrink. Japan is experiencing very low inflation and has experienced bouts of outright deflation. We will have to see if this scenario plays out for European countries with similar demographics. Low inflation could actually have other causes such as high debt levels in industrialized countries.
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Re: Is Inflation Dying of Old Age?

Post by LadyGeek » Mon Jun 19, 2017 3:31 pm

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