Simple Example of Why Government Spending does not cause Crazy Inflation!!

What did they teach you in highschool about the depression of 1920?

My history book must be incorrect because if there were a shred of truth in this post the actions taken by Harding could not have resulted in such a spectacular recovery.

Funny thing is there was a similar situation that happened a decade later. This time the government took your advise. Wonder why we all remember that depression as the "great depression" while the depression of 1920 is....well they probably didn't tell you much about that one in highschool did they? I bet they did mention the roaring 20s though.

 

Raising minimum wage does not weaken the dollar, how can it? Now printing does. Just look back in history.
look what happened to the spaniards when they took gold from the Aztec Indians and from parts of South America
they took all this gold back to Spain and well, they had inflation, because they had too much GOLD.
The gold became not so hard to find, making it worth less.

The same is with paper money, To understand money look at it from the gold perspective. why is gold
up so high? well gold is not up as high as you may think. in 1998 it was at $296 an ounce, today its
about $1,500 an ounce, something like that, yet gold is not higher in price, but your Dollar is that
much weaker, that it takes that much paper dollars to equal 1998's value that your dollar was worth just a few years ago.

So our dollar has weakened that many times. $296.00 goes into $1,500.00 5 times.
2000 years ago Jesus could buy the best suit for those days that money can buy and the best slippers
etc. with 1 ounce of gold. today you still can, even though it would be a nice suit and shoes etc.

The only thing with paper money is we use it so much, that we don't see the tree's because of the
forests. we have to stand back and look at it from the gold perspective, then can we see just how
much the government has taken from us though inflation. inflation is the unseen tax. and only
government has the power to create inflation.



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Lol, gold is a useless piece of metal. Just because it worked in unsophisticated societies doesn't mean it has any special quality to it that makes it intrinsically valued as a currency.

And yes, when you convert gold to dollars you can get a nice suit. If you converted our currency to gold, an ounce of gold wouldn't even get you a house.

 

Look, it's simple math something that either you choose to ignore or a concept that's a struggle for you. I'll give you a basic lesson.

If you have one guy who has $1,000 in the bank and another who has $1,000,000 and the dollar loses 40% of its value via inflation - the first guy has lost $400 of wealth, the second guy lost $400,000 of wealth. Who has lost more wealth?

Not a difficult concept really, some might even say common sense. However, I've been increasingly surprised to find that common sense is... well, not all that common.

 

That's probably the funniest thing about Gold bugs. no matter how big gold's value balloons they still have to convert it to dollars if they ever want to trade it for anything. No one trades in gold

 

That's the same with every commodity.

So what?


BTW...gold is up over 600% since mid '99.

The DOW is up less then 5% since mid '99.

Yup, gold bugs are laughing...all the way to the bank.

 

You said assets, not money. People who invest that $1,000,000 in assets get the benefit from inflation. People who own wealth benefit from inflation. Only people who hold on to money, have fixed incomes, or can not increase their wage, get affected by inflation, that is normal inflation between 2-3%.

So that's why I was laughing at your comment, because it seemed really ironic you were saying that people with assets lose value from inflation.

 

I just hope you and the rest of the gold bugs can read the signs of it's eventual pop. This gold run isn't going to last forever.

 

And it is so hilarious how they constantly complain about inflation but then brag about golds value in dollars. That always gives me chuckle!

 

True.

As soon as Bernanke starts noticeably raising rates...I'm probably out.

But he already said that won't be until 2013, so I probably have some time left.

 

The actual recession didn't start until December 2007 so I think 2006 is ahead of the curve, although at that time it was probably too late for any corrective action.

http://www.businessweek.com/magazine/content/03_27/b3840057.htm

Not everyone is as sanguine as the stock market, however. What, for instance, would have happened had Freddie bet the wrong way on interest-rate movements, or if banks, fearing further problems, refused to buy its debt? Freddie's problems reveal just how little is known about its inner workings -- and highlight the risks should the markets lose confidence in its ability to manage its huge derivatives portfolio."Even if they're not trying to cook their books," says Michigan State University accounting professor Thomas J. Linsmeier, Freddie's mistakes show that "there could be a systemic problem requiring a taxpayer bailout."

Freddie and Fannie are crucial cogs in the housing market because they buy mortgages from commercial banks and other lenders and resell them to investors as mortgage-backed securities. That frees lenders to lend again. And thanks to the three-year-old housing boom, Fannie and Freddie now carry an astronomical $1.6 trillion in assets on their balance sheets, up from $962 billion in 1999. But as Freddie has shown, what lies behind those numbers is often a mystery.

The reason, in a word, is derivatives. The root of Freddie's problems can be found in a dense document called Statement of Financial Accounting Standards 133, which determines accounting rules when derivatives are used as hedges. The rules require companies to assign current market values to the interest-rate swaps, options, and other derivatives they hold and to reflect any changes in their value on the balance sheet.



http://www.city-journal.org/html/10_1_the_trillion_dollar.html

Looking into the future gives further cause for concern: "The bulk of these loans," notes a Federal Reserve economist, "have been made during a period in which we have not experienced an economic downturn." The Neighborhood Assistance Corporation of America's own success stories make you wonder how much CRA-related carnage will result when the economy cools.

 

Fair enough - you are correct. Assets <> money... not always anyway, I'll give you that.

However, people on fixed incomes are not the only people who hold onto money. Depending on what stage you are in life you may be invested in cash or cash like securities, corporate/municipal/treasury bonds, commercial paper, etc as a significant portion of your portfolio. These are all impacted by inflation as well. Not only that, but if you are invested even in the stock market there is not a direct correlation of total return to inflation - you are taking on more risk than is necessary to offset inflation and inflation eats away your real rate of return.

Actually the only type of assets that aren't negatively impacted by inflation are so-called "hard" assets like gold, commodities, real estate, etc. Most folks trying to save for retirement are not (and should not be) heavily weighted in those assets - they [should] only set aside a portion of their portfolio for those sectors for diversification and as a slight hedge against inflation.

So... minor win on your part, but overall still not a sound idea to say that government spending doesn't increase inflation and that the wealthy are not impacted by it more than the poor.

 

Government spending has an inverse relationship with Private sector spending. The more we save, the more the Govt spends. The more we spend, the less the Govt spends. Govt spending in itself is not inflationary in terms of year to year inflation rates. The inflation effect from Govt spending is supposed to bridge the gap between savers/spenders and allow us to have a net increase in growth from year to year.

And no, the wealthy are far less affected by inflation than the poor. Because the poor typically have no assets and are dependent on a wage. If their wage doesn't go up, they are definitely affected by inflation. The wealthy own hard assets, they own the real estate, treasuries, collectibles, stocks, etc. Only the wealthy that stick their money in a bank and just let it chill get hurt by normal inflation.

 

Christ, you make zero sense. Get the refund for your "education" and buy a hot dog cart.

 

I'm sorry you do not understand it. Sell your hot dog cart and get an education.

 

No one? Are you sure? Gold clauses have been enforceable since 1977, and was upheld by the 6th circuit in a case that involved a gold clause. That would negate your "no one" argument right there, but I suppose, like all leftists, you have this magical knowledge of what everyone is doing. You should be a central planner with that sort of power.