Help me explain something about inflation here

[obama-lama]

Quote from SomeYoungGuy:

I accounted for the rise in property owning costs in the non-mortgage spending that went up 10% (keeping pace with inflation): that pipe that burst this year cost your $500 to fix and next year the plumber will charge you 10% more, or $550.

And I guess I should have said MY wage will keep pace with inflation. I don't care so much about the unwashed masses. I am very employable; smart, hard working, good attitude, quick learner. I fully expect to be able to earn twice the national average in any economy for as long as I wish.

What are the other errors? They obviously aren't obvious to me.

First, you never acquire wealth or become rich merely keeping pace with inflation. More important to most however, standard of living and-or way of life becomes stagnant. Stuck, with no way out.

Second, you assume your lifestyle EXACTLY matches the lifestyle-basis of COLA. I'll bet you forget about that bag of chips that cost .99¢ last year now costs $1.29, a 30% increase. But that wasn't included in CPI therefore is misleadingly absent from COLA.

Third, a 10% raise, $200 bucks in your example THIS YEAR equates to something closer to $175. Something called taxes, ever changing and dependent on where you live.

Welcome to Serfdom

serfdom, A state of subjugation to an owner or master

 

[JJacksET4]

SomeYoungGuy,

I agree with you 100% and have been saying basically the same thing on other threads - inflation is not always bad and CAN in fact be VERY VERY good in certain cases.

Of course, large inflation would be very bad for someone who:
1. Works at a job where only minimal raises are possible.
2. Rents most everything.
3. Isn't prepared / doesnt know how to prepare etc. I.e. no/minimal gold, long term investments, real estate, etc.

People always come out and say the old "what if your salary doesn't go up as much" and to some extent that can be true, but in some cases, you might even get a bigger raise then the inflation, so the average should be about even.

I know if I was making say $20 an hour and the prices went up big over 3 years, I would now expect to make a new wage based on that - if the company couldn't do it, I would try find one that would, etc. Again, if a person is really stuck salary wise, it could be bad for them then.

I also agree with the other guy - it's not just real estate - being in debt in general (at lower interest rates) is a good scenario in inflationary times (i.e. also car payment wouldn't go up - personal loans, student loans, etc).

JJacksET4

 

[the1]

Your logic is flawed because your property taxes will go up along with your home owners insurance and the costs of maintaining your home. You gotta buy snow shovels, lawn mowers, gasoline for both, fertilizer, salt for the ice patches, and whatever other pleasantries come with owning a home. Oh yeah, a new roof in a few years. Inflation is going quickly eat into that extra 1k (plus raises) you got for the whatnots.

And then there's the problem of your wages not keeping up with inflation. It's funny how it works....everything goes up 10% per year <b>except</b> your wages.

Quote from SomeYoungGuy:

Let me talk macro down to micro for the sake of arguement for a second so I can talk to my crazy in-laws this holiday season.

Let's say you buy a house, 30 year fixed mortgage, $1000 a month payment, and you bring home $2000 a month at a good steady job with COLA adjustments that keep pace with inflation. You spend the whole remainder of your paycheck after the mortgage on food, entertainment, and whatnot.

Now if the gov't engineers a nice steady 10% inflation per year, you are going to come out great in the end.

Of that $2000 you make per month in the first year, $1000 goes to the house payment and the other $1000 goes to the rest of your expenses.

The 2nd year, you get a 10% raise to $2200. Your house payment doesn't go up because you were smart and got a fixed mortgage, so you are left with $1200 after you send that check. Now the rest of everything went up 10% (or $100), to $1100. You buy all the same stuff and have $100 left at the end of the month, to spend or save.

Now we can infer a few things:

Real estate (or anything else with actual intrinsic value) is an excellent investment.

It's a great way for the gov't to raise taxes without raising taxes. Your rising paycheck will continue to bump you into a higher tax bracket. You're not just paying 10% more in tax because your income went up 10%. You're paying 11% more because of the progressive income tax rates in the US.

With the same scenario, it becomes easier for the gov't to pay off it's long term obligations (to China, et al.) with these cheaper, inflated dollars.

My big question is, what is China going to do about it?

 

[obama-lama]

Quote from JJacksET4:

SomeYoungGuy,

I agree with you 100% and have been saying basically the same thing on other threads - inflation is not always bad and CAN in fact be VERY VERY good in certain cases.

Of course, large inflation would be very bad for someone who:
1. Works at a job where only minimal raises are possible.
2. Rents most everything.
3. Isn't prepared / doesnt know how to prepare etc. I.e. no/minimal gold, long term investments, real estate, etc.

People always come out and say the old "what if your salary doesn't go up as much" and to some extent that can be true, but in some cases, you might even get a bigger raise then the inflation, so the average should be about even.

I know if I was making say $20 an hour and the prices went up big over 3 years, I would now expect to make a new wage based on that - if the company couldn't do it, I would try find one that would, etc. Again, if a person is really stuck salary wise, it could be bad for them then.

I also agree with the other guy - it's not just real estate - being in debt in general (at lower interest rates) is a good scenario in inflationary times (i.e. also car payment wouldn't go up - personal loans, student loans, etc).

JJacksET4

WOW! You drank a full pitcher of Koolaid. WOW!

 

[PlusMinus]

Quote from JJacksET4:

SomeYoungGuy,

I agree with you 100% and have been saying basically the same thing on other threads - inflation is not always bad and CAN in fact be VERY VERY good in certain cases.

Of course, large inflation would be very bad for someone who:
1. Works at a job where only minimal raises are possible.
2. Rents most everything.
3. Isn't prepared / doesnt know how to prepare etc. I.e. no/minimal gold, long term investments, real estate, etc.

People always come out and say the old "what if your salary doesn't go up as much" and to some extent that can be true, but in some cases, you might even get a bigger raise then the inflation, so the average should be about even.

I know if I was making say $20 an hour and the prices went up big over 3 years, I would now expect to make a new wage based on that - if the company couldn't do it, I would try find one that would, etc. Again, if a person is really stuck salary wise, it could be bad for them then.

I also agree with the other guy - it's not just real estate - being in debt in general (at lower interest rates) is a good scenario in inflationary times (i.e. also car payment wouldn't go up - personal loans, student loans, etc).

JJacksET4

You really have not thought this through very well.

Massive inflation will cause oil to rise. OPEC doesn't like being paid in worthless paper and they can do something about it. Oil as the major source of energy is not going away overnight. Thinking that you can game your way through massive inflation is foolish. Even gold during Weirmar Republic hyperinflation phase experienced rapid decline in purchasing power and high volatility. See first chart: http://www.nowandfutures.com/weimar.html

Secondly, what is this nonsense about "intrinsic value" and real estate?? You assume that during deflationary periods for real estate, as we've just had, that somehow these properties retain intrinsic value??? That is based on a set of assumptions that regard the future as ever coming close to the expansionary credit cycles that we've recently grown accustomed to.

Are you trying to go to your family holiday dinner to argue in favor of inflation?

 

[JJacksET4]

Quote from PlusMinus:

You really have not thought this through very well.

Massive inflation will cause oil to rise. OPEC doesn't like being paid in worthless paper and they can do something about it.....blah, blah blah

Did you read my post? Where did I say Massive inflation is always good? Where did I talk about oil? Where is this "intrinsic value" of real estate? I was talking about ones ability to pay the mortgage.

I stated that high inflation can be very bad for some people. It is however very true that some inflation can be very good for people (those whose paychecks keep up with inflation and who now have a higher paycheck with the same mortgage payment - maybe you never heard of fixed rates).

Some people do good in high inflation, others not so good - I am just pointing out like the OP that it is not all gloom and doom if there is some inflation.

JJacksET4

 

[PlusMinus]

Quote from JJacksET4:

Did you read my post? Where did I say Massive inflation is always good? Where did I talk about oil? Where is this "intrinsic value" of real estate? I was talking about ones ability to pay the mortgage.

I stated that high inflation can be very bad for some people. It is however very true that some inflation can be very good for people (those whose paychecks keep up with inflation and who now have a higher paycheck with the same mortgage payment - maybe you never heard of fixed rates).

Some people do good in high inflation, others not so good - I am just pointing out like the OP that it is not all gloom and doom if there is some inflation.

JJacksET4

My post was poorly worded, it was not meant to reply to you alone.

I think that the scenarios you're painting are too cute by half. There are exceptions in all extenuating circumstances, but overall inflation is not a positive development that people should look forward to.

The idea that the OP is so cocksure that he's employable forever is also just flat out funny. Entire paradigms can change before your eyes. Why doesn't the OP tell us what he does and see if his assertion stands the analysis of his profession and the future direction of the global economy. Somehow I don't think any profession short of government hack can be said to be safe from inflation or economic peril.

 

[JJacksET4]

Quote from PlusMinus:


The idea that the OP is so cocksure that he's employable forever is also just flat out funny. Entire paradigms can change before your eyes. Why doesn't the OP tell us what he does and see if his assertion stands the analysis of his profession and the future direction of the global economy. Somehow I don't think any profession short of government hack can be said to be safe from inflation or economic peril.

OK. No problem.

I agree, but remember in his post he was implying that he would get a COL increase that would match inflation, or at least that was what I read into it. Of course, that might not happen, and would be impossible to "guarantee" to any employee or anything.

My response was basically that he is correct IMO that if inflation hit, but he had the same raise in income while at the same time having the same old mortgage, that can be good.

I know a guy who knows a guy in So. Cal who bought a house back in like the 60s for maybe $30K and today rents it out for $2,500 a month. Of course, it was long ago paid off now. Oh, and I think after a while longer my friend told me he bought 2 or 3 more and those are paid off as well. Inflation can be good if used correctly

JJacksET4

 

[Mav88]

The dude may be an undertaker, in that case I believe him about his employment.

 

[nelsanity]

If you get a raise after a year, you just found out the hard way that you been paying for inflated goods with a steady income for a year, and now you are just playing catchup...Sucked didn't it...and that was only a year...repeat that for 10 years.