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A Visual Guide to Inflation

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  • A Visual Guide to Inflation

    Nothing new to iTulipers, but pretty cool nonetheless (if you haven't signed up or at least checked out Mint.com for quick and aesthetically pleasing personal finance summaries and alerts, I hereby recommend it):



    http://www.mint.com/blog/finance-cor...-to-inflation/

  • #2
    Re: A Visual Guide to Inflation

    Moral of the story: Live beyond your means and borrow every penny you can so that you can bet on the asset class you think will go up.

    In other words: welcome to the government Casino:
    http://mises.org/multimedia/mp3/twotrilliontons.mp3
    Last edited by LargoWinch; April 02, 2009, 09:22 PM.

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    • #3
      Re: A Visual Guide to Inflation

      Great visual! I'll recommend it to my friends.

      Comment


      • #4
        Re: A Visual Guide to Inflation

        Originally posted by LargoWinch View Post
        Moral of the story: Live beyond your means and borrow every penny you can so that you can bet on the asset class you think will go up.

        In other words: welcome to the government Casino:
        http://mises.org/multimedia/mp3/twotrilliontons.mp3
        And don't be concernced that your levered bets may lose. The Feds will make you whole. We socialize the losses in order to keep animal spirits of greed on top of those of fear.

        this is nothing but propaganda to maintain the status quo - perhaps it would have more credibility if it delved into the details of how the CPI is massaged to meet the magic number of "a little inflation is good".

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        • #5
          Re: A Visual Guide to Inflation

          Originally posted by vinoveri View Post
          details of how the CPI is massaged to meet the magic number of "a little inflation is good".
          I always wonder why people believe in this concept. The bullhorn is quite strong indeed.

          What is wrong with increased production and lower real prices?

          What is wrong with an increase in the standard of living?


          We have someone here in the office with an MSc. in Economic Sciences (not that accounts for much) here who firmly believes that 0% inflation is bad and that inflation is the result of demand and growth.

          How can we possibly hope to explain inflation to the masses if MSc.E don't even get it?

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          • #6
            Re: A Visual Guide to Inflation

            Originally posted by LargoWinch View Post
            I always wonder why people believe in this concept. The bullhorn is quite strong indeed.

            What is wrong with increased production and lower real prices?

            What is wrong with an increase in the standard of living?


            We have someone here in the office with an MSc. in Economic Sciences (not that accounts for much) here who firmly believes that 0% inflation is bad and that inflation is the result of demand and growth.

            How can we possibly hope to explain inflation to the masses if MSc.E don't even get it?

            Inflation Good?: Inflation encourages productive investment vs. hoarding. Inflation enables prices to revert to equilibrium for things that are reluctant to move down in price (such as wages, etc).

            Inflation Bad?: You can't stuff your cash in your mattress and not worry about it dwindling away to nothing. Variable inflation creates difficulty in predicting profitable investments.

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            • #7
              Re: A Visual Guide to Inflation

              All inflation is bad. It is stealing from the prudent.

              OK, because you all have decided that the Bernanke and Carney inflation is acceptable, I have built my garage. After a burst of employment in the community here to build my garage, my savings are gone at the bank.

              So inflate all you want. Find some other sucker to put money in the bank and make sacrafices to save. And my bank will now have to borrow from the govn't (the Bank of Canada) to make loans into this community because I won't save and I don't think anyone else will save either.

              And I will re-value the garage and my home upward thru time as you continue to print money. So what you are doing by inflating the currency is cheating your children's generation out of homes. You have borrowed from the next generation to support the life-style of the present generation--- which hardly seems fair to me.

              But kids can't complain because they are too young.... So John Maynard Keynes found his suckers.

              Comment


              • #8
                Re: A Visual Guide to Inflation

                Originally posted by CharlesTMungerFan View Post
                Inflation Good?: Inflation encourages productive investment vs. hoarding.
                I disagree; inflation creates another layer of uncertainty in the economy among other problems (see Rajiv's video here).

                Also, it does not encourages productive investment, all to the contrary: it promotes speculation over productive investment.


                Originally posted by CharlesTMungerFan View Post
                Inflation enables prices to revert to equilibrium for things that are reluctant to move down in price (such as wages, etc).
                This is wrong. Have you asked yourself what is the equilibrium?

                Comment


                • #9
                  Re: A Visual Guide to Inflation

                  Originally posted by LargoWinch View Post
                  I disagree; inflation creates another layer of uncertainty in the economy among other problems (see Rajiv's video here).

                  Also, it does not encourages productive investment, all to the contrary: it promotes speculation over productive investment.




                  This is wrong. Have you asked yourself what is the equilibrium?
                  Inflation drives prices up and up and up and UP. It encourages speculation and hoarding of real goods, especially real estate and gold. So our children end-up paying the hoarding costs and speculation costs for real estate which means that the current generation is living-off its children.

                  Keynsianism robs the next generation to pay for bail-outs for the current generation. Life would be prosperous now for our kids if real estate prices were cheaper.

                  Funny, how the central bankers don't see this failure in Keynsian policy, or maybe they do see this omission and don't care because kids don't vote.
                  Last edited by Starving Steve; April 03, 2009, 03:07 PM.

                  Comment


                  • #10
                    Re: A Visual Guide to Inflation

                    Originally posted by Starving Steve View Post
                    Inflation drives prices up and up and up and UP. It encourages speculation and hoarding of real goods, especially real estate and gold. So our children end-up paying the hoarding costs and speculation costs for real estate which means that the current generation is living-off its children.

                    Keynsianism robs the next generation to pay for bail-outs for the current generation. Life would be prosperous now for our kids if real estate prices were cheaper.

                    Funny, how the central bankers don't see this failure in Keynsian policy, or maybe they do see this omission and don't care because kids don't vote.
                    I think we've had this conversation before, and it will again go nowhere. But I will say that asserting that we are stealing from grandchildren is not a solid argument:

                    There is a lot of rhetoric these days about making our grandchildren pay for our spending today. Like any “deficits are always bad” argument, this one doesn’t even meet the plausible metaphor test. That is, grandparents routinely spend money (thereby reducing their grandchildren’s eventual inheritances) on things that will make their grandchildren’s lives better.

                    As Nancy Folbre puts it in Economix (the New York Times blog):

                    Think of the United States economy as a family farm in need of modernization. Energy prices are going up, but all the tractors are gas guzzlers. Some of our fields have accumulated toxic levels of pesticide, and we need to develop new and better technologies of sustainable production. Our grandchildren want to run the farm, but will need good health and a college education to do it well.

                    Spending money on increased energy efficiency, research and development, health, and education could increase the value of their assets, helping them repay debt.
                    That’s just her closing metaphor; I recommend the entire article (it’s pretty short). There is a legitimate debate about what government spending actually benefits our grandchildren and what doesn’t, but it doesn’t make sense to say that every incremental dollar of current spending is hurting our grandchildren.

                    I tried to make this point on Planet Money, but I like Folbre’s story more.
                    http://baselinescenario.com/2009/04/...grandchildren/

                    Comment


                    • #11
                      Re: A Visual Guide to Inflation

                      Originally posted by LargoWinch View Post
                      I disagree; inflation creates another layer of uncertainty in the economy among other problems (see Rajiv's video here).

                      Also, it does not encourages productive investment, all to the contrary: it promotes speculation over productive investment.
                      Agree to disagree.


                      This is wrong. Have you asked yourself what is the equilibrium?
                      I know what equilibrium is. In case I wasn't clear, I was referring to the short-run Philips Curve. Perhaps I don't understand what you are asking...

                      Comment


                      • #12
                        Re: A Visual Guide to Inflation

                        In any case the whole illusrtration is fundamentally flawed. The taxation effect has not even been mentioned and this cause monstrous distortions in both the equity issues and in the allocation of resources.
                        As Fan says we have been through the rest before. I just wonder if people who promote inflation as the cure for all economic woes ever wonder why we have no savings. They can't seem to make the connection. (Not a criticism of Fan)
                        A few years ago, I listened to a 40 minute speech by the Gov of the Reserve Bank of Australia exploring the lack of savings problem. Inflation and resutant after-tax negative interest rates over a period of 40 years dod not get a mention.

                        Comment


                        • #13
                          Re: A Visual Guide to Inflation

                          Originally posted by The Outback Oracle View Post
                          In any case the whole illusrtration is fundamentally flawed. The taxation effect has not even been mentioned and this cause monstrous distortions in both the equity issues and in the allocation of resources.
                          As Fan says we have been through the rest before. I just wonder if people who promote inflation as the cure for all economic woes ever wonder why we have no savings. They can't seem to make the connection. (Not a criticism of Fan)
                          A few years ago, I listened to a 40 minute speech by the Gov of the Reserve Bank of Australia exploring the lack of savings problem. Inflation and resutant after-tax negative interest rates over a period of 40 years dod not get a mention.
                          I do not think inflation is a cure all - far from it. I think the lack of savings is more due to lack of real wage gains coupled with leveraged-induced asset bubble and the desire to maintain a certain standard of living.

                          Comment


                          • #14
                            Re: A Visual Guide to Inflation

                            I fear that the presentation missed Cost Push Inflation, which is probably the first variety we will see. It also glossed over the fact that in past inflations wages kept pace and in this one that is very unlikely. Also, it also glossed over the fact that there would be no wage and price controls. Well, wages won't need controls because they won't rise and prices won't be controllable because they will be determined by the constantly devaluing dollar. Paying back debts with cheap dollars assumes that dollars get cheaper through wage increases, not just worth less.

                            I got it! Let's not worry about inflation until $3-4 gas returns, food increases 50-100%, energy and medical rise similarly, and somehow that mortgage and those credit cards that were supposed to be easier to pay off with inflation suddenly default. Sorry, this fairy tale is not something I would want to show to a friend.

                            Comment


                            • #15
                              Re: A Visual Guide to Inflation

                              Originally posted by CharlesTMungerFan View Post

                              There is a lot of rhetoric these days about making our grandchildren pay for our spending today. Like any “deficits are always bad” argument, this one doesn’t even meet the plausible metaphor test. That is, grandparents routinely spend money (thereby reducing their grandchildren’s eventual inheritances) on things that will make their grandchildren’s lives better.

                              As Nancy Folbre puts it in Economix (the New York Times blog):

                              Quote:
                              Think of the United States economy as a family farm in need of modernization. Energy prices are going up, but all the tractors are gas guzzlers. Some of our fields have accumulated toxic levels of pesticide, and we need to develop new and better technologies of sustainable production. Our grandchildren want to run the farm, but will need good health and a college education to do it well.

                              Spending money on increased energy efficiency, research and development, health, and education could increase the value of their assets, helping them repay debt.
                              with respect, the analogy you mention is hardly on point, i.e., a grandparent or parent for that matter spends on their grandchildren and children are self-directed and deliberate responsible acts overseeing their assets and the use thereof and having a direct impact on their direct progeny (who by the way they are their responsibility). To extend this analogy to that of society as a whole spending for the next generation, particularly in the context of what we're seeing with the present spendthrift and entitlement generation is sort of ridiculous IMO.

                              think of the U.S. as the family farm wherein the current generation has consumed most of the seed corn to live like kings and has sold off the back acres as well, and hasn't tended the land (read manufacturing) and now recognizes it's lifestyle is threatened. Let's take the rest of the seed corn, mortgage the rest of the farm and buy the magic beans that will grow a beanstalk and we'll discover a castle with hidden gold and a golden goose ... yes that's it we need a golden goose ...

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