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**blazespinnaker** · August 17, 2006, 02:36 AM

Re: an idea for EJ - an (un)official iTulip currency

Also something we can get official values for going back to 2000 (or further) would be of practical importance, so that we can chart on a historical basis.

jk · August 17, 2006, 09:42 AM

Re: an idea for EJ - an (un)official iTulip currency

Originally posted by blazespinnaker

Hey EJ, how about an official currency for iTulip?

It would be cool if we could start charting everything (like the DOW, Housing, Gold, Oil, etc) in a currency which wasn't so ... fiat.

That way we get rid of all the money illusion effects that create so much confusion in these discussions that we're having.

One idea for value (borrowing from Finster here) would be the value of the USD at the year 2000 given some measure of inflation.

What that measure of inflation should be up for an interesting debate. You might have to executively decide what it is .... all I ask is that it is based on something joe six pack needs to live on and not something theoretical and yellow. ;) But that's just my biased viewpoint.

do you really think that we're going to come up with a better guage than john williams' shadowstats? if we want something more concrete, albeit less inclusive, let's go with the economist's big mac index. they've been publishing it for many years now, so it should be possible to look it up. it also gives us a measure to apply internationally, not just to the u.s. dollar.

EJ · August 17, 2006, 11:03 AM

Re: an idea for EJ - an (un)official iTulip currency

I've been thinking about this for a while, and picked up most if not all of the domains for a Fourth Currency.

We make fall back on gold temporarily, for lack of an alternative, but gold doesn't meet the requirements for a modern hard currency.

Dabchick's been doing the opposite for a few years with her Dabchick gold index, measuring the price of gold against a basket of currencies. The objective was to detect the transition of a dollar price rise in gold to a price rise in all currencies that was expected as global central banks began to print in unison. It shows up quite clearly in her chart late 2005.

But back to the question at hand. If we were to invent a currency based on a basket of commodities, what commodities would we choose and in what proportions? Can we, here at iTulip.com, invent the currency that may some day be adopted in name and function, The Forth Currency? Interesting notion.

jk · August 17, 2006, 11:56 AM

Re: an idea for EJ - an (un)official iTulip currency

there was a reason the cpi moved to a chained calculation - any basket of commodities will be chosen to somehow reflect current patterns of consumption. as those patterns change over time, so must the basket if it is to remain relevant.

i think the yuan may emerge as the next global reserve currency, but not any time soon. in the meantime i suggest discussing the following alternatives:

gold- long history of monetary use, prices available and published, price reflects confidence or lack thereof in paper currencies. wild price/value fluctuations limit its usefulness in time frames shorter than decades. it is said that an ounce of gold will always buy a good quality man's suit. maybe we need to go the brooks brothers standard.

oil- useful historically only back to early 20th century, unfortunately price reflects demand and supply variables beyond just current economic activity.

big macs- even shorter historical record. a globally standardized product, the cost of which reflects agricultural commodities, transportation and labor.

i think the big mac is best- concrete, universal [almost], something joe sixpack can relate to.

**blazespinnaker** · August 17, 2006, 01:07 PM

Re: an idea for EJ - an (un)official iTulip currency

Originally posted by jk

do you really think that we're going to come up with a better guage than john williams' shadowstats? if we want something more concrete, albeit less inclusive, let's go with the economist's big mac index. they've been publishing it for many years now, so it should be possible to look it up. it also gives us a measure to apply internationally, not just to the u.s. dollar.

I think different inflation measures can be equally valid. The fact is, I think the fed version is just fine.... unfortunately, it's a one size fits all approach (the nature of the beast, I'm afraid).

Different people who have different life styles might be less or more concerned about different types of inflation. For the greenpeace hippie living in the sticks, I'm not sure energy inflation is a big deal. For the power boating enthusiast, I'm sure it is a big deal.

Or the wallstreet dude, who probably looks at the prices of martinis and hotel rates.

I think we just need to try to define the person that we care about here - joe sixpack and soccer mom with the 2.5 kids?

Should we index it to the american dream? What is the american dream these days, anyways?

**blazespinnaker** · August 17, 2006, 01:09 PM

Re: an idea for EJ - an (un)official iTulip currency

big macs- even shorter historical record. a globally standardized product, the cost of which reflects agricultural commodities, transportation and labor.

i think the big mac is best- concrete, universal [almost], something joe sixpack can relate to.

Yeah, I agree, I think there is a rental rate cost in there as well. When you buy the burger, you're partially paying for the lease on the land that the mcdonalds drive thru is built on.

**blazespinnaker** · August 17, 2006, 01:15 PM

Re: an idea for EJ - an (un)official iTulip currency

I got 2.50 in 2000, and 3.10 in 2006, for about an average annual inflation of 4%.

**FRED** · August 17, 2006, 01:19 PM

Re: an idea for EJ - an (un)official iTulip currency

EJ wrote a piece on AlwaysOn Dec. 2004 where he proposed a Dick and Jane monthly budget inflation index.

His sources were:

Insurance Information Institute:
http://www.iii.org

Bureau of Labor Statistics:
http://www.bls.gov

Box Office Mojo:
http://www.boxofficemojo.com/about/adjuster.htm

Sports Business:
http://www.sportsbusinesssims.com/tickets.htm

Household Budget Management:
http://www.dacomp.com/sample.html

Maybe we update it quarterly? What do you think?

Ed.

**Jim Nickerson** · August 17, 2006, 02:16 PM

Re: an idea for EJ - an (un)official iTulip currency

I think it is a good idea if one is capable of keeping apples to apples in tracking the data.

One factor in attempting to track health insurance premiums has to do with increases that may be related to inflation vs. increases in premiums due to the age increase of the individual--and this likely is impotant because healthcare cost increases may be the leader of pack of things increasing.

**Finster** · August 17, 2006, 03:36 PM

Re: an idea for EJ - an (un)official iTulip currency

Originally posted by blazespinnaker

One idea for value (borrowing from Finster here) would be the value of the USD at the year 2000 given some measure of inflation.

Using that as an example (taking the value of the USD at the beginning of 2000 as 1.0000), the FDI came in at the beginning of 2004 at 0.9127, the beginning of 2005 at 0.8541, and the beginning of 2006 at 0.7875.

Using the first two figures, we take 0.8541/0.9127 to find that the dollar lost about 6.4% of its value during 2004. Inverting this - 0.9127/0.8541 - we get 1.069, which signifies 6.9% inflation. Applying the same to the latter figures, we get 8.5% inflation during 2005. Doing the same with the values at mid-2005 and mid-2006 (0.8345 & 0.7683), the corresponding y-o-y inflation reading as of June 30 this year is a similar 8.6%.

So in general, as reckoned by the FDI, inflation has been running in the neighborhood of eight percent. Considering that the BLS CPI omits home prices (which have been galloping up the past three or four years), this ought to sound about right.

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