InflationFollow

Inflation is coming. Here is a good overview/brief explaining the creation of money and the economic crisis.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3526645/Citigroup-says-gold-could-rise-above-2000-next-year-as-world-unravels.html

We are increasing the money supply without increasing goods and services, meaning each dollar will be worth less than it was today.

Federal reserve assets are booming off the charts since the 'crisis,' and there is some speculation that the bailout is going to cost $8 trillion.

The idea that we are going to get some of that money back is laughable. The fact that our government continues to hand out this money is shameless.

I hope the sky doesn't fall on any of you, but you have been warned for sometime. I would invest in gold if I were into that kind of thing.

Cheers.

EDIT: A better link that explains the economic crisis and its relationship to inflation and gold from a leaked Citigroup internal memo.


Edited, Dec 1st 2008 9:08pm by soulshaver

For the record buying stocks while they are really low is a bad idea, and if you have any you should sell them quickly, I have some spare cash, I could take any you have already off your hands before you get into serious trouble

Invest in silver.

INVEST IN SILVER.

-Cannington Mine

I only took Economics 101 in college. (It was all that was required in my electrical engineering degree). As far as I remember, during inflation, the value of the dollar decreases, so the value of any dollars you owe decrease as well.

So if you owe 10,000 USD in 2005, and now in 2009, that 2005 10,000 is only really worth the equivalent of 9,000. So you owe less actual value. The person owing the money is better off in the end.

Where as if it were deflating, that 10,000 USD in 2005 would be worth 11,000 in 2009, making you actually owe more. The person who is owed the money is better off in the end.


Of course, those numbers are entirely made up, I don't know the actual rates.

True, but goods and services also cost more, so you cannot save up as much money on top of typical expenses to pay off your loans. Also, the economic recession will lead to less employment and lower wages, so the bottom line would be that it would be more difficult to pay off your loan than it was before inflation.

Then you file for bankruptcy. Bankruptcy is the only thing that keeps our economy going because there is not enough money to pay off our collective debts (having to do with the fact that you create money based on debt, and each dollar created has debt attached to it, and the only way to pay off debts is with money with creates more debt, etc...so the only way we can pay off debts in the end is for some entities to file for bankruptcy.)

These banks will guzzle up our money and then file for bankruptcy and we will never see a dime of that money again.

The recession led to inflation.

God, the near deflation of the last few years is part of what @#%^ed us up in the first place.

Edited, Dec 1st 2008 8:19pm by Annabella

http://www.reuters.com/article/marketsNews/idINN0135884020081201?rpc=44&sp=true

Bank stocks tumble, they are closer to bankruptcy now that they have more of our money, funny how that works.

So we will have inflation coupled with higher unemployment and loosened credit. Can anyone guess what will happen next?

People will max out their credit cards for essentials and then file for bankruptcy because they have no job.

Expect the credit card companies to be the next ones to be begging for government money before they go bankrupt.

What a wonderful system, whoever would've thought that the idea of "floating markets" based on perpetual debt was a bad idea...

Dear dude/gal:

SE fixed inflation years ago. Get over it and get a life. Better recommendation: smoke three packs of cigarettes and drink a bottle of whiskey a day for three months; make sure to seclude yourself, this is serious training. Run a marathon. Finish said marathon in under four hours. Run another marathon the same day. Make sure to wear a bracelet with the initials DNR in bright dayglo color so the paramedics cannot miss it. Hopefully, assuming the first marathon doesn't do the trick, the second will cause either an aneurysm/heart/lung explosion. Bonus points for any combination of the previous mentioned. Hopefully, the damage you do to your organs will prevent the epic fail that is you from seeing any of your organs transplanted and causing further harm on humanity.

Bank stocks tumble, they are closer to bankruptcy now that they have more of our money, funny how that works.

So we will have inflation coupled with higher unemployment and loosened credit. Can anyone guess what will happen next?

Either a gradual recovery to sustained growth or a Mad Max style wasteland where we kill each other for gasoline and eat ground up baby meat to survive. Life's full of risk!

No. They dont. Ok. Technically, they do, but not when (drumroll please) adjusted for inflation.

The relative value of goods and services within the economy does not change as a result of inflation. Just the relative value of a dollar to those things. If you print up twice as much money, each dollar will be worth about half of what it was before. That's because money doesn't have any intrinsic value. It's just a medium for calculating the exchange of goods and services.

For any active transaction, inflation doesn't have too much effect. Everything costs twice as much, but there's twice as much money to pay for it. Wages and the value of goods tends to follow inflationary trends (although there can be hurtful lag, especially when inflation is fast rising). Even investments will tend to rise with inflation since most are tied to some real capital.


The one area in which it's an absolute win or lose situation is loans. Those are straight numbers on a piece of paper. They aren't tied to anything. Someone lent that money when the money was worth X amount and get paid back when it's worth Y. If Y is significantly less than X the lender loses out and the borrower wins.



You're adding in a whole bunch of other factors though. If we're talking about just inflation, it does not do those things. Other factors may, but they'll do it whether inflation occurs or not. As some have suggested, inflation may even be helpful.




Me? Maybe. You? Not unless the government and economy both suffer a full collapse. You've heard of FDIC, right? Now, I suppose that if inflation occurs too fast, this will affect the relative value of the insured dollars, but I'm going to go out on a limb and guess that without some incredible inflation over a sustained period of time, you're in no danger of losing money because a bank goes under.

The problem is modern-money-mechanics and the METHOD we are using for inflation. I can imagine a stimulus that would do good (which would cause inflation), but it has nothing to bailing out banks or auto companies or any other terrible business ideas. We can create government jobs in the energy industry to begin with, but that is a different topic.

I f you're honestly concerned about inflation, the right thing to do is to take on as much fixed rate debt as you possibly can, and use it to buy low depreciation assets. Ping pong balls, say. Buy a billion ping pong balls for $15,000,000 in borrowed cash and when you can sell them for $1, do so. There, you're set for life now. You're welcome.

If we're talking about true economy wide inflation, then yes, you will get raises to adjust for it, just as you do all the time. It's just that you've lived your entire life during a time period in which inflation has rarely peaked much above 3% or so, so you can't grasp what happens when inflation is higher. You get bigger raises each year exactly because the value of your labor compared to other factors hasn't changed (but those other factors are worth more dollars). If your employer has to pay twice as much to buy the materials his business consumes, and he charges twice as much for the end product, then what on earth (aside from bizarre paranoia) makes you think that he wont also be paying twice as much for his labor costs.

You're thinking that dollars have intrinsic value. They don't. The value of the labor of a soapmaker is tied directly to the value of that bar of soap he makes on the market. If his boss can sell that bar for twice as much, the value of the guy who stirs the soap vats will go up by the same amount and he'll pay that person an equivalent amount more.

While some people have argued that this doesn't always happen due to greed by the business owner, and that can happen in a non-inflationary situation (ie: demand for soap goes up, so cost goes up, but owner doesn't pass that on to the employees), but it *can't* happen if the cost increase is the result of inflation. Inflation occurs economy wide. It's not like suddenly the rich people have twice as much money to spend and could choose not to spend it on labor. It's a step by step process. Wages going up is as much a cause of inflationary pressure on other parts of the economy as anything else (and arguably, one of the stronger pressures).

There can (almost always is in fact) be some delay between when one factor in the economy inflates and others follow suit and this can result in wages following prices. But it can also go the other way around. If wages rise too fast, it'll drive up prices as well. And that's just two of a multitude of factors involved.



Only if you assume some magical process occurs which makes the cost of goods go up but not wages. While it's possible, that's not what inflation typically does.



I really do suspect you're still stuck thinking that dollars have intrinsic value. I'll repeat again: They don't. Each "thing" in the economy has a value that's relative to the other "things" in the economy. Sometimes those relationships are simple (like the value of a soapmakers labor to the value of a bar of soap), sometimes they are much more complex. But they are always relative. And while it's certainly possible for specific sectors of the economy to become more or less relatively valuable, that's *not* a result of inflation.


In this particular area, the thing to worry about isn't inflation but employment rates. If too many businesses crash or have to downsize, people lose their jobs. That increases the relative amount of people looking for jobs compared to the number of available jobs. That will decrease relative wages. Inflation wont (except for short term shifts). Unemployment will.


So if you're really worried about wages, you need to be looking at the health of the employers out there, not inflation.



Lol! Who's "they"?

Have you been paying any attention at all to the economic problems over the last year and a half? The very very last thing "they" want to do is foreclose on people's loans. Seriously.



That helps in the short term, but deepens a recession (and can lead to full depression) in the long run. Government job programs only work if the value generated by the labor is actually worth doing. Remember when I said earlier that the value of labor is related to the value of the things that labor produces? If you give people jobs for the sake of giving them jobs (busywork), you end out creating the equivalent of (for lack of a better term) "employment inflation". In the same way that printing up twice as much money will make each individual dollar worth half as much, if you just hire twice as many people, but the output is the same, then you've actually just cut the value of labor in half. That *will* lead to wage drops over time.


Job programs have to actually do things that are worth doing. Just hiring more bodies to do the same amount of work may help those individuals in the short term, but absolutely screws the whole labor market in the long run. It's a very very very bad idea...



Was I supposed to look into a crystal ball to figure that out? You specifically said that banks would take our money, then go bankrupt, and we'd never see a dime of it. Silly me for assuming you were talking about our money in those banks.

Now. If you're talking about taxpayer bailout money that's a whole different topic. And one I kinda agree with (to a degree). I'm not sure exactly how that relates to the national debt though. If we borrow money to bail them out, then the debt will go up. But that doesn't take it directly from us (not today anyway). If they raise taxes to pay for it, then you're correct. They're taking our money and we should think about it long and hard. Now, if they print up some extra money, then that leads to inflation, which comes back to the original topic.


Where the money comes from is kind of important. We can all go off on wild tangents, jumping from assumption to assumption, but that's not terribly helpful IMO...