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History of Inflation

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November 15, 2010 – Comments (6)

There is a very good video that gives a look at prices that I had not considered, that when production grows with your money supply that also keeps inflation down.

It certainly ties in some basic observations.  For example, I think people's actual cost of living increases are far, far, far above the CPI, which averages the necessities down with things like I can still find blue jeans for the same price as when I was a teenager.  I feel like I see two different co-existing economies.  Go to Costco, or Wallmart and there are tables of products for sale for the same price as 20 or 30 years ago.  It is partly how the low income wage earner is able to still survive.  At the same time you can find goods that are up 300-500%.  Take a good quality winter coat for example.  I could definitely get a very good coat for well under $100 and now you can see them for several hundred dollars. But, when you look at food, shelter, and energy I think those are up 300-500%.  I used to buy chickens for $2 that cost me $10 today. That works out to about 5.5% price increase per year yet there has hardly been a year when over 2% has been reported.

And what I think of as primary production items, like the metals and natural resources, have also increased well ahead of reported CPA.

 I completely agree that we have already experienced inflation, we just haven't been able to see it.

6 Comments – Post Your Own

#1) On November 15, 2010 at 12:25 AM, gman444 (28.71) wrote:

Yes, and this fits with the increasingly skewed distribution of wealth, with "the masses" spending most if not all of their income on the necessities. 

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#2) On November 15, 2010 at 8:40 AM, dwot (47.53) wrote:

And there there is the growing population that doesn't have the money for the necessities anymore.

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#3) On November 15, 2010 at 9:06 AM, dwot (47.53) wrote:

Here's another good video via Big Picture.

I am going to disagree somewhat with the analysis that it is the retirees that pay for it by the devaluation of their savings.  I say somewhat because yes, saving is devalued, however, at the same time the opportunity to accumulate such savings would have never happened without all the crap in monetary policy.  

It was "common knowledge" when I was growing up that only the first few years of homeownership were hard because wages go up relative to the debt.  The generation above me had this massive benefit of taking on debt that was devalued through inflation, which enabled them to save more and have a much better lifestyle.  They also saw huge gains in asset values because of the 20 odd years of stepping down the interest rates.

Indeed, many guidelines we still employ today for borrowing are based on affordability of that debt from the days when debt was quickly devalued.  I never owned a home through a period of significant wage gains.  Indeed, our household income was up and down from when we first became homeowners in 93 until we sold in 2008 and over all, our income was utterly flat.  There were a few years in there where income was below 93 levels, 2005/2006 being one a couple of them. 

We never borrowed what lenders would have given us and the amount we did borrow was overwhelming to me.  But we qualified for 60-70% more then our peak borrowing.  We paid down debt and that was critical for remaining financially stable for the down income years.

Borrowing in the 60% of the maximum of what lenders would lend was highly burdensome and most of my adult life had enormous financial stress because of debt and lack of ability to feel in control of it.

The reality of debt in a low inflation market is that lending practices are grossly generous even with the strengthening of lending that we have seen since the housing bubble crashed.

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#4) On November 15, 2010 at 10:24 PM, russiangambit (29.30) wrote:

What I see is that where there is global competition there is deflation - food, clothing, furntiure, IT services, technology, wages in indstries exposed to global competition. But where an industry is protected from global competition there is out of control inflation - all kinds of insuarance indusutries, education, healthcare, law, housing ( until recently) and govenment services. The end result is inflation because things that go up in prices do it so much more quickly than those that fall/ stay flat.

As the world catches with us in prosperity  (or rather US falls behind ) these benefits of global competition start leveling off and the burden of price increases becomes almost unbearable to the majority of the population.

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#5) On November 18, 2010 at 1:42 AM, FreeMortal (29.34) wrote:

Nice link.

It's hard to infer inflation from food and energy prices because they can fluctuate wildly in the short term. Right now, inflation is hidden mostly by velocity. M0 is high, yet M3 is relatively low.  

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#6) On November 18, 2010 at 11:28 AM, dwot (47.53) wrote:

I think inflation has also been hidden by the export of dollars.  How many people and businesses from other countries hold reserves in US dollars?  If the dollars are sitting somewhere rather then being spent that keeps prices down.  I think we have seen far more price increases in Canada.

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