Help me explain something about inflation here

Quote from JJacksET4:

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
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I see your point, over a long period of time, if all other things are managed properly, yes you can make out nominally. But when you factor in purchasing power, it gets blurry.
 
Quote from 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.
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Good points...but increase in prop taxes depends where you live. If live California then your taxes locked at the purchase price. Some peple live in $1M home which bot 30 years ago for 100K and only pay $1K/year in taxes (might go up a little if county has direct assessments such as new fire station built at the time,...)
But now if you live elsewhere...say Nebraska as far I know county sets the tax amount based on their assessment, if home prices go through roof..so do your taxes...when down...like now...so your taxes go down.
 
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?
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When inflation is at 10%...COLA is usually less...maybe 4 or 5%. You end up losing money every year until inflation comes down. If inflation was so good, then hyperinflation should be really good. Go ask any of the countries that have or had hyperinflation if they got a 5000% COLA when inflation was 5000%
 
Quote from JJacksET4:


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
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Its an illusion. It sounds like a good deal because when you hear 30k you are thinking 30k in todays money, but that 30k is really 1960s money. Whatever he could sell the house for today would buy no more than it would in the 1960s.

For instance...lets look at gold. $30k would buy you 857 ounces of gold in the 60s. Today that house better be worth $960k to get you the same amount of gold. Heck...throw in 2 ounces of gold for rent income per month for the last 40 years and the house better be worth $422k and that is assuming he didnt spend a penny for maintainence.

The fact is...the real wealth came from paying off the mortgage. If their was zero inflation he would be just as well off with $250 per month in rental income and 30k of equity in his house in 1960 dollars as he would be with today with 2500$ rental income and 400k equity in a house today in 2009 dollars.

The only way people get rich off their houses is when these crazy booms happen and thats not inflation...thats speculation.
 
I like the direction my thread took. :)

To clarify a few things;
hell yes I am cocksure I will be able to outearn the average person, forever. By definition, half the people will underearn the average and half the people will overearn. I'm smarter, harder working, a faster learner, and a more dedicated employee than half the people in this world.

10% was a random number pulled out of my butt. Could have said 9%, could have said 25%.

I have received no raise for the last two years at my job. I have other things going on in my life and don't really want to add a job search to the mix, but I would expect an increase in pay on par w/ 2 years of inflation if I were to job hop.

The point is, I realize that I won't get COLA adjustments that perfectly track inflation. But it will average out over several years.
 
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