Fort Knox empty?

1988RedT2 wrote: LOL. Well, see, before we went off the gold standard, the CPI would go up a little, then down a little. Kinda unstable, see? But since we left the gold standard, the CPI has been rising steadily. The slope of that curve is steep, and very stable.

And deflation tends to be considerably nastier than inflation. It's generally something you see when nobody's spending money, so sellers have to drop prices hard to get anyone to buy. There were quite a few long deflationary runs in that graph until the gold standard was removed.

Yeah, where was a long deflationary run? How bad was it? Couple percent? The line is flat for most of history. How is deflation worse than inflation? The only people scared of deflation are the bankers printing more money (sorry, putting more zeros in a spreadsheet.) You want inflation? In the past ten years, the value of your dollar has been cut in half. Probably less. Are you making double the pay you were ten years ago? Right now, we are in a state where the price of everything goes up, but wages are stagnant. That is The Big Suck if you're working for a living.

In reply to Dr. Hess:

That is not flat. It appears to be when looked at on the scale you post. But looking year to year that is far, far from flat.

Don't be alarmist and realize what the graphs really say.

Dr. Hess wrote: Yeah, where was a long deflationary run? How bad was it? Couple percent? The line is flat for most of history. How is deflation worse than inflation? The only people scared of deflation are the bankers printing more money (sorry, putting more zeros in a spreadsheet.) You want inflation? In the past ten years, the value of your dollar has been cut in half. Probably less. Are you making double the pay you were ten years ago? Right now, we are in a state where the price of everything goes up, but wages are stagnant. That is The Big Suck if you're working for a living.

The fact that middle-class wages have not kept up with inflation is an issue in this country, but that point speaks more to the wage gap between the top and bottom of the range. On average, wages have kept up with inflation. The problem is that the average has increased because those who make the most are making even more.

http://www.cbpp.org/cms/?fa=view&id=3629

Deflation is unequivocally bad for everyone. Here's why:

What happens in deflationary cycles is that consumers start to say, rationally, "Hey wait a second, I don't have to buy my iPod, or car, or furniture today, I'll wait 3 months, or 6 months [until prices deflate further]." The problem is that as more and more consumers start to make that logical step, is that the economy starts to shrink even further. It's what they call a deflationary cycle. Factories start pulling back, investments start to fall, and more and more people are laid off. And so what seems to [the consumer] as in his best interest, will be a wave that eventually comes back and crashes on him, too.

Listen to this starting at the 1:40 mark.

http://www.npr.org/blogs/money/2008/11/hear_whos_afraid_of_lower_pric.html

Yeah, I know the theory. There are other studies that show that consumers in a deflationary cycle don't actually think "I'll just wait..." and they just buy what they want. Here is why deflation is better for you, if you're not deep in debt: You are better off not going into debt to buy crap you don't need, like an iPod, new car or furniture, all of which comes from China today. So, deflation is good for you and me and bad for bankers and globalists (those in the top 1% of your graph) and that's why we will never see deflation again.

Dr. Hess wrote: Yeah, I know the theory. There are other studies that show that consumers in a deflationary cycle don't actually think "I'll just wait..." and they just buy what they want. Here is why deflation is better for you, if you're not deep in debt: You are better off not going into debt to buy crap you don't need, like an iPod, new car or furniture, all of which comes from China today. So, deflation is good for you and me and bad for bankers and globalists (those in the top 1% of your graph) and that's why we will never see deflation again.

"You are better off" is prescriptive, not descriptive. You're stating what you think people should do in that situation, not what they actually do.

Long-lasting, large-scale deflation exacerbated the Great Depression.

Deflation (and the constraints on central bank policy imposed by the gold standard) was an important cause of banking panics, which occurred in a number of countries in the early 1930s. As discussed for the case of the United States by Bernanke (1983), to the extent that bank panics interfere with normal flows of credit, they may affect the performance of the real economy; indeed, it is possible that economic performance may be affected even without major panics, if the banking system is sufficiently weakened. ... Countries in which, for institutional or historical reasons, deflation led to panics or other severe banking problems had significantly worse depressions than countries in which banking was more stable. In addition, there may have been a feedback loop through which banking panics, particularly those in the United States, intensified the severity of the worldwide deflation.

http://www.nber.org/chapters/c11482.pdf

The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison

by Ben Bernanke and Harold James

The percent change of CPI graph appears to be saying, as the CPI is lower, a small change ends up being a large percent. As the CPI increases, it takes a larger change to equal the same percent. This is just math. Correct me if I'm misisng something, or have misinterpretted it.

Example: If the CPI were 50, and it went to 60, that's a change of 20%. But, if the CPI is 200, and goes to 210, (the same number increase) that's a change of only 5%.

As I type this, I'm thinking that perhaps this is still relevant, although since official CPI data really only goes back to around the creation of the Federal Reserve (coincidentally), which means there's about as much real CPI data for Gold Standard America as post-Gold Standard America, conclusions may be tough to draw.

I agree with some who have said that the Gold Standard isn't the biggest issue this economy currently faces, and certainly not the only one. I struggle with understanding things like how a young couple like the ones I saw on "House Hunters" the other day, both of whom are holding down basic middle class type jobs, can be hunting for a $400k house. I looked up the numbers once: in 1950, the average household income to average home price ratio was 1:1.6. In 2000 (before the real estate market went all wonky) it was 1:3. To me, that says that in real terms, houses are twice as expensive as they were 50 years ago. Add in the fact that in 1950 most household incomes were based on a single wage earner, and in 2000 there were significantly more two-income households, and I feel like there's really cause for concern.

Dr. Hess wrote: Yeah, where was a long deflationary run? How bad was it? Couple percent? The line is flat for most of history. How is deflation worse than inflation? The only people scared of deflation are the bankers printing more money (sorry, putting more zeros in a spreadsheet.) You want inflation? In the past ten years, the value of your dollar has been cut in half. Probably less. Are you making double the pay you were ten years ago? Right now, we are in a state where the price of everything goes up, but wages are stagnant. That is The Big Suck if you're working for a living.

You post when deflation happened and that it's not a bad thing...

Deflation periods: 1921- down 10.8%, 1922 down 2%, 1926 down 1.1%, 1927 down 2.3%, 1928 down 1.2%, 1930 down 6.4%, 1931 down 9.3%, 1932 down 10.3%, and then 1938 down 2.8%. BTW, this is actual inflation- the basic CPI chart doesn't show that all that clearly. Since you are ok with a coke at $1.25, the change of it from $0.05 to $0.06 is a measly penny- but it's also 20% more. Scale matters.

I don't think that the deflation periods were all that wonderful- as a matter of fact the 1930-1932 range of deflation lead to some rather tough times. What you miss is that for many workers, deflation = fewer consumers = fewer sales = job losses. Which means even fewer consumers. So while some people may be doing ok, more people would have problems than 'benefit'. That happened in the 30's before there was a mass of consumer debt- only the banks were deep in debt.

As for your claim of dollar cutting in half in the last 10 years- the data has the CPI currently at 234 (7/2013) whereas 10 years ago 7/2003 it was 183.9. The math I learned in school has that as an increase of 27%. Not quite close to an increase of 100%. 100% increase of CPI (when the dollar was half what it is now) would be when the CPI was 117, which was back in April 1987.

You should look at the data a little closer. It's interesting.

volvoclearinghouse wrote: I struggle with understanding things like how a young couple like the ones I saw on "House Hunters" the other day, both of whom are holding down basic middle class type jobs, can be hunting for a $400k house. I looked up the numbers once: in 1950, the average household income to average home price ratio was 1:1.6. In 2000 (before the real estate market went all wonky) it was 1:3. To me, that says that in real terms, houses are twice as expensive as they were 50 years ago. Add in the fact that in 1950 most household incomes were based on a single wage earner, and in 2000 there were significantly more two-income households, and I feel like there's really cause for concern.

That bugs me too. But do note that the cost of a home may be 50% higher than it was, the homes are much bigger than they were in the 50's. In addition to twice as much wood, more opulent materials are used in HH shows- countertops, sinks, appliances, floors- etc. not sure when it became ok to stretch your income to "require" that, but that's what we see on TV.

If you examine smaller homes built more like homes in the 50's, you will note that they remain pretty cheap to build. not many of them around, though.

alfadriver wrote:

volvoclearinghouse wrote: I struggle with understanding things like how a young couple like the ones I saw on "House Hunters" the other day, both of whom are holding down basic middle class type jobs, can be hunting for a $400k house. I looked up the numbers once: in 1950, the average household income to average home price ratio was 1:1.6. In 2000 (before the real estate market went all wonky) it was 1:3. To me, that says that in real terms, houses are twice as expensive as they were 50 years ago. Add in the fact that in 1950 most household incomes were based on a single wage earner, and in 2000 there were significantly more two-income households, and I feel like there's really cause for concern.

That bugs me too. But do note that the cost of a home may be 50% higher than it was, the homes are much bigger than they were in the 50's. In addition to twice as much wood, more opulent materials are used in HH shows- countertops, sinks, appliances, floors- etc. not sure when it became ok to stretch your income to "require" that, but that's what we see on TV. If you examine smaller homes built more like homes in the 50's, you will note that they remain pretty cheap to build. not many of them around, though.

I'm with you guys, I'm amazed to see that basically all of our friends have bought homes that are much larger/more expensive/newer, yet have much less income to support it. My only desire for a newer home is to have a big kitchen for the wife and 3-4 car garage for me.

It would be neat to see if a neighborhood built toward gear heads could work. 2 story 1300-1500 sq ft homes with all living space on the top floor, with a high ceiling 4-5 car garage on the bottom.

z31maniac wrote: It would be neat to see if a neighborhood built toward gear heads could work. 2 story 1300-1500 sq ft homes with all living space on the top floor, with a high ceiling 4-5 car garage on the bottom.

That's what I have. Just over 1500 ft^2 with an attached 1000 ft^2 garage.

It's nice. But I'm still trying to downsize my car count.

Yes, it's true, homes have roughly doubled in average size since the 1950's. And consumer standards have increased as well- we now "require" things like central A/C, granite everything, 30 cubic foot refrigerators, and high-efficiency appliances.

But, I feel like the overall quality of modern homes has decreased. My wife and I recently bought a farmhouse in Westminster, MD. In an area where new homes are going for $300k and up (even after the housing bubble "burst", so to speak) we picked up our little piece of our version of the American Dream for $160k.

When I called the insurance company to get a policy written on the house, they asked a book full of questions about the house. The original house was built sometime before the War Between the States, and the addition (which roughly doubled the size of the original house) was added sometime around the early 1900's. Total square footage is about 1700, which was fairly large by 1910's/ 20's standards but below average these days. Anyway, based on the age of the house, and things like intricate wood work, radiator/ hot water heat, tiling, and other things, they said that the replacement cost of the house would be roughly $300,000. Interestingly, they said that if the house were to be replaced by a "modern" version, that figure would decrease to about $190,000. The walls on the house are over a foot thick and the foundation is local stone. Walls are plaster, floors are solid wood, etc etc etc.

The house needs work, but it's habitable (by our standards, anyway, which are admittedly pretty low- we spent the first 3 nights there without running water and still don't have a functioning heating system), our budget is very comfortable now, and along with the 1700 square feet of non-cookie cutter home we also got 3+ acres of arable land and 7 outbuildings, three of which are large enough to hold cars. And one of the outbuildings is slated to become a guest house/ B&B.

volvoclearinghouse wrote: But, I feel like the overall quality of modern homes has decreased. My wife and I recently bought a farmhouse in Westminster, MD. In an area where new homes are going for $300k and up (even after the housing bubble "burst", so to speak) we picked up our little piece of our version of the American Dream for $160k.

that very much depends. My home was built in the 20's. So it had empty 2x4 walls, and the floors are a very flexible 2x6 base. Roof is a basic 2x4 non-supported slope. Tiny bit of insulation, leaky windows, etc.

and the foundation.. yikes.

The wood used is really nice, but the contruction isn't that hot.

now all of that is much better engineered.

There are a lot of modern homes that are poorly put together, sure. But I would not really put all old homes in the better quality side. Still- most of the quality problems are about who and how they assemble it, not the material costs.

Deflation is a huge boogey man that has never really happened. Quoting Ben's book is interesting and all, but it is just a theory by an academic, chosen to be head of the fed because he does things that the bankers want (prevents any semblance of deflation and giving them trillions, see above.) Other theories on the prolonged extension of the First Great Depression put the blame on loose monetary policies and excess regulation of the economy by FDR.

For inflation statistics, look at the CPI calculated as how it was before Regan started and Clinton perfected mucking around with the numbers. Then tell me what your Walmart (or wherever you grocery shop) bill was 2 years ago (or 10) versus today. That's real inflation. Numbers that look at rent (primarily,) and ignore food and fuel are hardly realistic.

alfadriver wrote:

volvoclearinghouse wrote: But, I feel like the overall quality of modern homes has decreased.

that very much depends. My home was built in the 20's. So it had empty 2x4 walls, and the floors are a very flexible 2x6 base. Roof is a basic 2x4 non-supported slope. Tiny bit of insulation, leaky windows, etc. and the foundation.. yikes. The wood used is really nice, but the contruction isn't that hot. now all of that is much better engineered. There are a lot of modern homes that are poorly put together, sure. But I would not really put all old homes in the better quality side. Still- most of the quality problems are about who and how they assemble it, not the material costs.

My statement was of course very general. When you start talking about farm houses in particular, most were built before there was much engineering, or even building codes...at all. So it is very much dependent on the materials that were available at the time (and geographical area, as moving materials long distances over land wasn't really practical or cheap until about the late 1800's, and even then you had to be near a railroad), and the builder. And, to some extent, the modifications that were made over time. Our house has some structural elements that are trees- and I mean that in the most literal sense of the word. There's still bark on some of them. But, they are 8" or more in diameter (with parts flattened in order to secure actual boards to them) and I figure, they've held the house up for the past 160+ years, what are the odds they'll collapse tomorrow? ;-) Insulation is easy to fix, and windows can be upgraded- sometimes just some fresh glazing and paint can help a lot. Electrical and plumbing upgrades are harder, but not impossible.

My first house was a 1930's Sears Kit home. Excellent materials and craftsmanship throughout- true dimension lumber (meaning a 2 x 6 was actually 2" by 6", not 1-1/2" by 5-1/4"), real wood moldings, wood floors, solid doors, and solid throughout. The house after that was built in the 80's, and I would not expect it to be around another 3 years without significant structural work. Very poorly and cheaply built.

The farmhouse is House #3 for me, and probably my favorite of all of them.

Dr. Hess wrote: Then tell me what your Walmart (or wherever you grocery shop) bill was 2 years ago (or 10) versus today. That's real inflation. Numbers that look at rent (primarily,) and ignore food and fuel are hardly realistic.

that's part of inflation, not all of it. And much of what we buy to consume has not changed price that much. Certainly not double in the time you claim.

So instead of conjecture claiming that there was no deflation and inflation is so out of hand- how about some data? Something that has real numbers that you are basing your claims on?

Here's some more data to chew on...

According to car and driver, a 1990 Honda Civic had an MSRP of $11,950, whereas a 2013 Honda Civic has an MSRP of $17,965. That's a 50% increase in 23 years. Seems like a lot, except that it's pretty in line with 23 years of inflation. Then if you factor in what is MORE in an 2013 Civic than in 1990- more power, better fuel economy, better crash structer, air bags, infotainment, etc etc- then that 50% over 23 years starts to look remarkably low.

It's not all that hard to find things that are higher in cost compared to inflation, but it's also pretty easy to find things that are significantly lower in cost compared to inflation. See cars, tv's, computers, radios, phones, etc. I can go into a Walmart today and spend less on a TV than I would have 6 months ago.

Inflation calculated the way it was prior to 1983:

Yeah, TV's are cheaper. As are computers. The way inflation is calculated today, the cheaper TV or computer is considered deflation, offsetting things like gasoline or cow, for example, because hey, 19" TV's are super cheap now, as are IBM PC-XT equivalents. But try to run Windoze 8 on that XT and you'll find that it doesn't quite work out that way.

So, add up the inflation in the past 10 years, come up with an average rate, say, 10% just to ball park it, and, using the Rule of 77, your money doubles (or halves) in 7.7 years at 10%, so, yeah, I'm sticking by my 100% inflation in the last 10 years. Ballpark. Sure ain't no 20%.

Other example: My 1986 FLHT cost me 9 large out the door. Same bike today? Pushing 30. Oh, but look, it has 2 cams instead of one. So that's cheaper, right?

Dr. Hess wrote: Inflation calculated the way it was prior to 1983: Yeah, TV's are cheaper. As are computers. The way inflation is calculated today, the cheaper TV or computer is considered deflation, offsetting things like gasoline or cow, for example, because hey, 19" TV's are super cheap now, as are IBM PC-XT equivalents. But try to run Windoze 8 on that XT and you'll find that it doesn't quite work out that way.

And the lowering of the cost of goods and services is a bad thing for what reason?

Where are you getting your special numbers? I've asked this quite a few times, and you still don't post sources. How is one to evauluate the validity of your special numbers if one can't see where they come from? Your claim that the CPI calculation changed could be correct, but even if it is, where do you have documentation that the change is bad?

I'm trying to find specific items that I buy that have gone up 10% a year. Outside of gas, I can't think of one. A new Miata isn't 100% more expensive. Soda isn't 100% more expensive. TV's are not 100% more expensive. Grass fed beef is 100% more expensive than industrial beef- but industrial beef isn't 100% more expensive. The dollar menu at Wendy's didn't used to be the $0.50 menu 10 years ago.

If this is SO INCREDIBLY obvious to you, how about some very specific examples? A Harely bike is hardly a major consumer device. And sources of the data- just because you could get a FHLT for $9k doesn't mean that it was the MSRP. This should be as easy as a google search away. Otherwise, you have no data to back up your claims- just pictures with lines in them. At least my data has a source.

Dr. Hess wrote: So, add up the inflation in the past 10 years, come up with an average rate, say, 10% just to ball park it, and, using the Rule of 77, your money doubles (or halves) in 7.7 years at 10%, so, yeah, I'm sticking by my 100% inflation in the last 10 years.

One more post to reply to you- if you don't want to post your sources, that's fine- I'm pretty sure I would not want to read them anyway, and here's why.

Lets assume that your numbers are close to reality. Last time we had inflation near 10% sustained, the result was massive lines at food shelters, going around the corner, and a rather impressive depression. A huge percentage of the US would be struggling to eat, let alone have shelter or transportation. No way that one could afford luxuries like entertainment or technology- all personal income would have to go to basic survivial.

But we all know that's not the case.

instead of not enough food, the headlines tell us that obesity is a huge problem. So food isn't that hard to get.

Home sales are going up, and just a post above we think it's odd that so many people are buying much bigger homes than their parents.

The auto industry is on track to sell 15,000,000 cars this year. If we were that bad off, how is that possible?

Stadiums continue to be filled for sporting events. Even with higher ticket prices. That tells me that a lot of people have a lot of expendable income.

People travel a lot- there was a thread here complaining about overcrowding on airplanes. Which is a combination of work + pleasure- both of which indicate some good money going around. Every cruise we go on is more filled than the last, and the cruise industry is ADDING capacity, not taking it out.

Lots of technology is being sold- to have threads complaing about Windows8 and iTunes tells me that a lot of computers are being sold as well as iThings and the Adroid things since people like to have both sides.

And for our family- both of us have had nominal raises, sort of (the wife hasn't gotten a raise for a few years). And somehow we travel a LOT more than we have, plan on getting a new car this month, eat prepared food (not cooking it), buy craft beer (more expensive than bud), etc etc. All of that and we have increased the amount of money we save for retirement. None of that would be possible if 10% inflation was real.

So observing reality, it's incredibly tough to belive that the "real" inflation was 10%. 3% seems much more realistic.

How that relates to the gold standard? Gold is only worth what someone will pay for a pretty metal that has some limited industrial usage. That does not appear to be a decent way to determine value of other stuff, especially since people find more of it every day. And, like diamonds, good industry can corner the market of finding it, thus manipulating it's value. We don't need the value of our dollar being linked to a company slimiar to Debeers.

If you want to be pessimistic,and upset about reality- fine by me. But I don't see any real evidence that I should follow suit.

Dr. Hess wrote: So, add up the inflation in the past 10 years, come up with an average rate, say, 10% just to ball park it, and, using the Rule of 77, your money doubles (or halves) in 7.7 years at 10%, so, yeah, I'm sticking by my 100% inflation in the last 10 years. Ballpark. Sure ain't no 20%. Other example: My 1986 FLHT cost me 9 large out the door. Same bike today? Pushing 30. Oh, but look, it has 2 cams instead of one. So that's cheaper, right?

I've been fortunate enough to have been born and raised in Brazil during the 1980s. An inflation problem like you're talking about, that's something you notice every day, first hand. It's something everyone in the country is aware of, not something you can distract people from with celebrity gossip. Shopkeepers keep their price guns loaded and update the tags every. Single. Day.

Inflation on the level you're talking about is emphatically not something you have to look back 10 years and argue with people about. Everyone knows it, intrinsically, because they don't just notice it in their wallet after careful analysis. They feel it very clearly.