Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 05-14-2008, 05:39 PM   #61
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by ladelfina View Post
It's a far wider, deeper, more systemic transfer of wealth than anything so vulgar and obvious as taxation.
I really like that.
__________________

__________________
RockOn is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-14-2008, 09:28 PM   #62
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Quote:
Originally Posted by ladelfina View Post

I think the classical definition of inflation is an increase in the money supply. Usually this includes wage inflation (which in the US has not happened).
I'm not sure where you're getting the "classical" definition of inflation. Mine was from "Principles of Macroeconomics" by Mankiw.
I also tried Googling and got: define:Inflation - Google Search
The increase in the money supply is a possible cause of inflation. If the money supply increases faster than real production, and the velocity of money doesn't change, then you will get increasing prices. (This is for a closed economy.)

Quote:
Let's think about production, consumption, and inflation in a basic way globally.
(I'm pulling these thoughts together as I go along, so bear with me).

The US GDP is $14 trillion.
70% of GDP is consumer spending.
Trade balance is -$827 billion. That translates into domestic purchases of $6.586 trillion and imports of $7.413 trillion.
If we assume that consumer vs. non-consumer spending is divided along the overall import/export lines, that means 70% of $7.413 trillion is consumer spending on overseas goods. If anything, consumers may be responsible for more purchases of imports, but let's be conservative. 70% of $7.413 trillion is $5.189, more than 1/3 of GDP.

Now if we look at the dollar, it has fallen against a the basket of world currencies by 25% over the last five years (Nov. 07, The Economist). 2006-2007 DXY went from 91-84; 2007-2008 84-76. That, to me, means that in 2006 and 2007, more than 1/2 of consumer spending ended up buying 8% less stuff, and then 10% again less stuff. And none of this would be counting any inflation in the countries of import which, in the case of Europe, is adding its yearly 2-3% in nominal price rises. Only by balancing out with marked deflation on the part that's the non-import side could one come up with a 3-4% overall inflation figure, right?
I'm also having trouble matching these numbers. I looked here: http://www.bea.gov/national/nipaweb/TableView.asp#Mid
and got gross imports to be 1/6 of GDP, not 1/2.
__________________

__________________
Independent is offline   Reply With Quote
Old 05-14-2008, 10:01 PM   #63
Thinks s/he gets paid by the post
ladelfina's Avatar
 
Join Date: Oct 2005
Posts: 2,713
Can you have inflation w/o increasing the supply of money?

I definitely mis-understood the trade stuff. I'm having a bad day, looks like! Apologies. Sorry, it's too late to edit.. thanks for the correction, though, Independent. I still think the effect should be considered but it's less than I made it out to be.
__________________
ladelfina is offline   Reply With Quote
Old 05-15-2008, 01:36 AM   #64
Recycles dryer sheets
barbarus's Avatar
 
Join Date: Aug 2007
Posts: 433
Quote:
Originally Posted by Independent View Post
I'm not sure where you're getting the "classical" definition of inflation.
Perhaps Milton Friedman's most pithy statement.

"Inflation is always and everywhere a monetary phenomenon."

i.e. Inflation is caused by only one thing. An increasing money supply/expanding credit.

Ask one of the moneterists on the board or pop in to the Economics Department at the University of Chicago..
__________________
Consult with only myself as your adviser or representative. My thoughts should be construed as investment advice of the highest caliber. Past performance is but a pale shadow and guarantee of even greater results in the future.
barbarus is offline   Reply With Quote
Old 05-15-2008, 08:20 AM   #65
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,455
Quote:
Can you have inflation w/o increasing the supply of money?
Yes, if the supply of money were to stay the same and the availability of goods and services were to decline - for example, artificial scarcity coming from price controls, trade restrictions or sudden catastrophe.

Ladelfina, have you seen this paper?PIMCO - Glidepath Paper- 8-2007htm
While slightly inwardly focused on their product line, they do a good job of framing, identifying and quantifying the risks you mention.

They also discuss what I think is the single biggest financial risk US population faces - the transfer of risk from employers to individuals by changing pensions from DB to DC. Liability and asset management responsibility is being transferred to 10's of millions who don't have the education, training or tools to properly manage, and the most unfortunate consequences will not show for decades, fat too late for any effective remedy.

Michael
__________________
MichaelB is offline   Reply With Quote
Old 05-15-2008, 10:13 AM   #66
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Quote:
Originally Posted by ladelfina View Post
Can you have inflation w/o increasing the supply of money?

I definitely mis-understood the trade stuff. I'm having a bad day, looks like! Apologies. Sorry, it's too late to edit.. thanks for the correction, though, Independent. I still think the effect should be considered but it's less than I made it out to be.
Like Michael says, you can have fewer goods and the same number of dollars. You could also move the dollars around more quickly (volatility), for example by holding less cash because you know that ATMs are convenient. Or, "money" could change while we're not looking. Maybe we're tracking currency and checking accounts as "money" and miss the fact that some people are using money market mutual funds like checking accounts.


I think your idea on trade makes conceptual sense. To the extent that we import goods, and the terms of trade become unfavorable, we lose real income. The Fed believes the best way to manage that loss is to have some inflation. So we consumers see the cost of imports going up while our incomes don't. But you need to start with 1/6 instead of 1/2.
__________________
Independent is offline   Reply With Quote
Old 05-17-2008, 12:42 AM   #67
Dryer sheet wannabe
 
Join Date: Dec 2007
Posts: 20
Three more to add:
A decreasing unemployment rate ( excl stagflation of course), government deficits, and the depreciation of a local currency can all have an impact on the inflation rate
__________________

__________________
spazz is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Implied inflation rate in an inflation adjusted SPIA cashflo2u2 FIRE and Money 6 04-30-2008 08:24 PM
With everyone convinced CPI is understated, how many are . . . Gone4Good FIRE and Money 14 04-21-2006 08:12 AM
What causes inflation? Rich_by_the_Bay FIRE and Money 27 04-18-2006 11:20 AM
Inflation or No Inflation? Donner FIRE and Money 16 01-19-2005 01:58 PM
No Inflation Here haha FIRE and Money 4 06-03-2004 10:22 AM

 

 
All times are GMT -6. The time now is 08:55 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.