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Wednesday, June 8, 2011
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8 comments:
gte-
I don't know if you are still on the board, but Paul Krugman just wrote a piece today about inflation
It basically confirms what I said that inflation is good for the poor/middle class and deflation is good for the rich. The poorest 90% of people have 73.4% of the debt in our country but only ~10-20% of investment assets. Sure Krugman has a bias, but it is against the wealthy so I really doubt he would be secretly pushing an agenda to help them.
I will disagree with his comment that stocks would not be hurt by inflation . Although this really doesn't change the argument because the poor also own very few stocks
So seeing that you called my argument completely fallacious I am curious if you have any data to support your claim?
Currently we have falling home prices coupled with rising food, energy, health care, and education prices.
Theoretically, you could have rising home prices with falling food, energy, health care and education prices and get the exact same inflation number.
So, for the middle class there is "good" 2% inflation and what we have now, which is "bad" 2% inflation.
Robert-
I agree there is better and worse 2% inflation and we have the bad type of inflation, but my argument was more for in general whether inflation is good or bad for the poor vs. rich, where the conclusion I think is pretty clear.
Although as you said unfortunately inflation is hitting the things the poor need and deflation is hitting things they don't need.
Also just to clarify government inflation reports do not include housing prices instead they use rents, which are rising slightly.
Also food inflation was only 3.2%, which is only slightly higher than average inflation over this time frame. Oil was really the big issue over the last year, although you are correct education and healthcare are also problems (particularly long term)
Energy prices have been a major issue for the economy, but at least it is slowly convincing people to start cutting back on energy use. car mpg's have been increasing at a very rapid pace over the last 5 years after barely budging for the previous 20 years.
Also you make it sound like it was very unlikely to have home prices rise while commodities fall. If you look over the last ~100 years you will see that food as a percent of income fell dramatically over the last 100 years. The same to a lesser extent is true with oil also
Housebuyer,
It's possible that this is a fine analysis, but it leaves me with questions.
Wouldn't inflation kill poor retirees, who never were sophisticated enough to invest in anything except savings, and who don't have any debt?
Wouldn't it also be difficult for savers who want to buy a house, but are forced into high-priced rentals?
The assumption is that wages would catch up, but yikes.
I think Paul Krugman has an agenda that's not necessarily pro-growth for the common man, for what it's worth.
Of course inflation is the only way out -- it explains the decisions made by our last Congress. There's no other possible explanation for gigantic deficits except that it's anticipated that inflation will bail out the government.
It just seems so unfair to savers.
This from the comments:
"I am 82 years old. All through the War I bought War Bonds with money from my paper routes. In 1945, between my Junior and Senior years of High School, the War Manpower Commission assigned me to work at the Army Depot in Schenectady, NY at 72 cents an hour. There I bought a $25 dollar bond each week that summer (cost $18.75). At War's end I had something like $500 (maturity value) in War Bonds.
My Father was on salary. He was not in a Union. He received no increase in pay after the war when wage/price controls were lifted. In the ensuing postwar inflation my family had to cash in one of my bonds each week just to keep up.
Inflation? Take it from a 'little guy' -- No thanks. Hal Cheney"
Harriet-
I agree with you inflation absolutely hurts many retired people. Although most retired people live almost entirely off of social security, which is adjusted for inflation (although old peoples costs may rise faster than inflation). If you are retired and have savings yes it is bad for you.
Inflation helps people with little/no savings, lots of debt, and an income (a standard middle class person). Retired people usually often have savings, no debts, and almost no income.
I also fully agree with you it is unfair for savers, but that was my point. In general savers are the wealthy people (10% of people have 80-90% of the wealth), so these people get hurt, yes this includes many of us on the blog. As someone with no debt and decent savings inflation would be fairly detrimental to my own personal wealth.
As for the deficits inflation is not the only way out of them. The governments debt load was larger after WWII and inflation was pretty moderate in the 50-60s while they dramatically reduced the debt.
Also the vast majority of the increase in deficits had nothing to do with bailouts or stimulus. Most of it was due a drop in tax revenue due to unemployment and an increase in costs due to the governments insurance programs. The cost of unemployment insurance, food stamps, social security (from people retiring early...).
The only way to fix the deficit is either raise tax rates or considerably cut back in the social programs/military. federal spending As much as some people claim there is a lot of fat to cut you can look where the money is being spent and the size of the deficit. To remove the deficit entirely with just cuts means you can only pay for social security, medicare, welfare and interest.
jumping in.
Hey guys, I"m bidding on a quadplex in DC.
4 single bed/bath apartments
if it works, it should cash flow, and there is some
hope i can get 5 yearcommercial finance
It's kind of in a cracky neighborhood, but i think
it will get better.
Side comment/question. I read online a suggestion that divorcing couples set up escrow accounts and each place an equal amount in the account to draw down from for repairs. Who manages these accounts? Who do you approach to get one? Thanks
Cherie -- good luck.
Terry -- that likely would be handled by a divorce attorney. They frequently serve as escrow agents to review and disburse money on certain set events. If you dont want to try that route, perhaps a bank will.
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