Does this explanation of inflation make sense?

[Jack V Savage]

Does your point about relative values hold true for ordinary corporations, which aren't simply derivative of value from consumer goods or labor costs?

Yes.

I would assume that modern large corporations have their values determined in such complex ways, including lots of long-term contracts (finance, cross-holdings, debt, insurance, currency positions, etc) that there is a substantial discontinuity between these different price areas. You could easily see inflation serving to erode one specific market sector, or one sector of capital, more aggressively than another.

Inflation is a general rise in prices (and obviously not the major factor in a company's price changes). I think that's the issue here. Obviously, prices for individual items change for reasons other than inflation. If a company's price doesn't rise above the general rise, it is falling in real terms, and inflation isn't the reason.

There are winners are losers from *changes* in inflation (the most obvious example is fixed debt contracts). So, again, we're oversimplifying to isolate the relevant issues.

The description of inflation in the OP is generally correct though, when referring to monetary inflation. Diluting the money supply through printing does cause monetary inflation and erodes the value of dollars in circulation.

The description in the OP said that gas would cost a dime if we used silver and suggested that money is sentient. You think it was generally correct?

The biggest mistake that I see people regularly make here is the failure to realize that there are two parties to every transaction. Every buy is a sale, and vice versa. Wages are labor expenses. Etc. Taking that into account, it's simply not logically possible for inflation to have the kinds of effects people think it does.

heya IDL,

the problem, for at least half the country, is that they've so little invested in the market.

Wages are also unaffected by inflation (that is, they rise with it). See above.

 

[IDL]

heya IDL,

the problem, for at least half the country, is that they've so little invested in the market.

http://www.csmonitor.com/Business/2...ge-of-Americans-owning-stocks-hits-a-low.-Why

so those who are getting by on cash-in-hand, will have less of it.

- IGIT

I agree. Cash is like a hot potato. The longer you hold onto it the more you get burned.

Looking at it from an investors perspective isn't a reflection of the average person.

 

[IDL]

Yes.

The description in the OP said that gas would cost a dime if we used silver and suggested that money is sentient. You think it was generally correct?

The biggest mistake that I see people regularly make here is the failure to realize that there are two parties to every transaction. Every buy is a sale, and vice versa. Wages are labor expenses. Etc. Taking that into account, it's simply not logically possible for inflation to have the kinds of effects people think it does.

The general description of it is one thing. The foreseen effects of using silver as an alternative is different.

I am saying the general description of it is correct, when referring to monetary inflation.

 

[IGIT]

Wages are also unaffected by inflation (that is, they rise with it). See above.

hiya Jack,

sure, but i was responding to IDL and the idea that those who have little to no investments (which makes up about half the country) will see their existing cash holdings shrink in value if significant inflation occurs.

i was wondering if there were instances where inflation rises faster that wages do. i know that at the moment wages are rising and inflation is pretty flat, so the two aren't always coupled proportionately, are they?

- IGIT

 

[Jack V Savage]

hiya Jack,

sure, but i was responding to IDL and the idea that those who have little to no investments (which makes up about half the country) will see their existing cash holdings shrink in value if significant inflation occurs.

i was wondering if there were instances where inflation rises faster that wages do. i know that at the moment wages are rising and inflation is pretty flat, so the two aren't always coupled proportionately, are they?

- IGIT

Inflation isn't the only factor that affects wages or other prices. Never said it was. Just that a general rise in prices acts as a boost to all prices (that boost can be offset or it can be on top of other boosts). So of course inflation can rise faster than wages. That doesn't mean that it's "eroding wages," it means that labor is losing bargaining power or the economy is shrinking or something--it's unrelated to inflation.

 

[IDL]

hiya Jack,

sure, but i was responding to IDL and the idea that those who have little to no investments (which makes up about half the country) will see their existing cash holdings shrink in value if significant inflation occurs.

i was wondering if there were instances where inflation rises faster that wages do. i know that at the moment wages are rising and inflation is pretty flat, so the two aren't always coupled proportionately, are they?

- IGIT

You'll be walking into muddy waters there.. It depends on what inflation is in that context.

Many people (me included) believe that inflation numbers are manipulated by how the governments calculate them so it becomes politics. So you get into determining what do the numbers put out even really mean in the grand scheme of things.

 

[Jack V Savage]

You'll be walking into muddy waters there.. It depends on what inflation is in that context.

Many people (me included) believe that inflation numbers are manipulated by how the governments calculate them so it becomes politics. So you get into determining what do the numbers put out even really mean in the grand scheme of things.

Many people are completely clueless. It's not possible for inflation to be significantly different from the BLS's numbers because it would show up in a lot of ways (plus, there are independent measures).

 

[IDL]

Many people are completely clueless. It's not possible for inflation to be significantly different from the BLS's numbers because it would show up in a lot of ways (plus, there are independent measures).

Well, weather you think the government would involve politics with their inflation calculations or not, 'Inflation' is a rather blunt term.

From a Canadian perspective for example, some people might think house prices would be part of the index. If house prices double (We are in a bubble right now), it wouldn't affect inflation yet people may feel like they are being priced out.

Mortgage rates are factored, but that doesn't reflect the entire picture.

There may be plenty of reasons for this, but overall people perceive 'inflation' in a general sense.

 

[5H3RD0G]

Truth is people aren't spending because prices are going up. Just buy what you need until prices stabilize. Once everything starts rotting then they will have to lower prices. Be patient consumers we control the prices in the end.

 

[IDL]

Truth is people aren't spending because prices are going up. Just buy what you need until prices stabilize. Once everything starts rotting then they will have to lower prices. Be patient consumers we control the prices in the end.

Cash sitting idle is being eaten away though through monetary inflation. If you wait for prices to come down you will be buying it with dollars that will be worth less.

That's why many see it as a hidden tax. The value of your money is being eaten away by the creation of money so it is in a roundabout way being extracted from the bottom and being put on top where it is being created.

 

[5H3RD0G]

Cash sitting idle is being eaten away though through monetary inflation. If you wait for prices to come down you will be buying it with dollars that will be worth less.

That's why many see it as a hidden tax. The value of your money is being eaten away by the creation of money so it is in a roundabout way being extracted from the bottom and being put on top where it is being created.

You have to take it from all perspectives if a food manufacturer for instance isn't moving products and stock evaluation time comes big discount for consumers. You just have to be a few steps ahead.

 

[IDL]

You have to take it from all perspectives if a food manufacturer for instance isn't moving products and stock evaluation time comes big discount for consumers. You just have to be a few steps ahead.

Absolutely. Short term fluctuations in the price of goods happen for all sorts of reasons.

Monetary inflation is more like a clock slowly counting down. They are really two completely separate things, but both factor in to the overall picture.

 

[Shartnado]

Go watch Zeitgeist Addendum. Good explanation of inflation and how it is built into the currency on purpose to ensure debt will always outnumber circulation.

Basically the us issues bonds to the federal reserve, which is a government promise of payment. The federal reserve then prints x amount of dollars equal to the bonds WITH INTEREST, that will always be greater than the bonds. Then banks loan out money based on their money supply, and up to 100 times greater than thier supply. So for every million dollars in reserve the banks can loan up to 100 million there in lies the depreciation.

The greatest pyramid scheme in the history of mankind.

 

[Jack V Savage]

Truth is people aren't spending because prices are going up. Just buy what you need until prices stabilize. Once everything starts rotting then they will have to lower prices. Be patient consumers we control the prices in the end.

If people aren't spending, why would prices be going up? Think about that. That's actually the reason prices are NOT going up. Plus, if people are expecting prices to rise, they'd be better off buying stuff now, rather than waiting.

 

[IDL]

Go watch Zeitgeist Addendum. Good explanation of inflation and how it is built into the currency on purpose to ensure debt will always outnumber circulation.

Basically the us issues bonds to the federal reserve, which is a government promise of payment. The federal reserve then prints x amount of dollars equal to the bonds WITH INTEREST, that will always be greater than the bonds. Then banks loan out money based on their money supply, and up to 100 times greater than thier supply. So for every million dollars in reserve the banks can loan up to 100 million there in lies the depreciation.

The greatest pyramid scheme in the history of mankind.

It's funny (or tragic) that when you go get a mortgage from a bank it doesn't cost them that money. They just create the money out of nothing (or whatever the ratio is, 10 to 1).

Then you work your ass off paying it back with interest. If you don't pay for whatever reason the bank could end up owning your house. And what did it cost them?

It's a micro example of the entire system.

 

[5H3RD0G]

If people aren't spending, why would prices be going up? Think about that. That's actually the reason prices are NOT going up. Plus, if people are expecting prices to rise, they'd be better off buying stuff now, rather than waiting.

I would go to Costco and check prices. Once products were at certain level then when people found it popular and bought in droves it would go up. Once people stop buying it went back down. It depends where you shop I guess. I find that the criteria in big market chains. If you go to a smaller business prices might not fluctuate much.

 

[Shartnado]

It's funny (or tragic) that when you go get a mortgage from a bank it doesn't cost them that money. They just create the money out of nothing (or whatever the ratio is, 10 to 1).

Then you work your ass off paying it back with interest. If you don't pay for whatever reason the bank could end up owning your house. And what did it cost them?

It's a micro example of the entire system.

A macro example is the great depression, it was a contrived collapse by calling in all loans over night. They collected like 90% of all property and put all smaller banks out of business. Simple but effective.

 

[IDL]

A macro example is the great depression, it was a contrived collapse by calling in all loans over night. They collected like 90% of all property and put all smaller banks out of business. Simple but effective.

If there was an evil genius prize, it would go to those who cooked up this system.

It's funny, when people talk about how are we going to fix this wealth inequality.. Hmm.. How about a tax?

How about kicking out the central bankers FFS. People just won't bite the hand that feeds them.

 

[Cubo de Sangre]

This thread has me curious about how well wages track with inflation. Anybody got quick access to something informative in this regard?

 

[Shartnado]

If there was an evil genius prize, it would go to those who cooked up this system.

It's funny, when people talk about how are we going to fix this wealth inequality.. Hmm.. How about a tax?

How about kicking out the central bankers FFS. People just won't bite the hand that feeds them.

I don't see how increasing taxation has ever solved anything. Especially when it hurts the little guy more than anyone. I'd like to see more basic bartering, goods for goods , value for value.