false inflation myths that are false

billyjoerob · Oct 14, 2013

Further confirmation of the hypothesis that interest rates/inflation rates tend to decline over the long term

This is a chart of inflation rates since 1200.

via

http://climateerinvest.blogspot.com/2013/10/the-challenge-of-low-return-environment_13.html

xelite777 · Oct 14, 2013

Quote from billyjoerob:

There are some things that everybody seems to think are so that just bother me, such as:

Myths:
a) inflation is inevitable. False. Weimar and the 1970s were a vast exception. You only go off the gold standard once. The British consol hovered around 2-4% from the death of Napoleon to WWI. Low interest rates and inflation are the norm. Would not be a surprise if inflation did not return during our lifetimes.

http://www.newworldeconomics.com/archives/2011/041711_files/consols.jpg

b) gold goes up with inflation. Again, there is no evidence for this. Gold has been up for 11 straight years, not a trace of inflation. That's data. Myth, busted.

c) inflation is caused by the printing of money aka inflation is everywhere and always a monetary phenomenon. Hmmm, Japanese have been printing money forever. True it's mostly sterilized, but they've still spent a ton of money and lowered rates to virtually zero. Lot of good it's done them. If inflation were a monetary phenomenon, Japan and the Bernank would have solved the deflation a long time ago. They haven't, needless to say. Look at what's right in front of your own face. Don't listen to the old myths.

Truth:

Deflation/inflation is a demographic and real phenomenon, not a monetary phenomenon. Inflation is caused by too many young people forming households, not saving, and chasing too few goods. That was the 1970s in the US and the 1960s in Japan. Old people don't cause inflation because the aged and infirm never spend money. Again, see Japan. See the US. See the global deflation all around us as the world greys.

This paper shows that in Japan and the US, "inflation is firstly a demographic phenomneon." p 13 has the goods.

http://www.insead.edu/facultyresearch/research/doc.cfm?did=47411

Remember that ontology always precedes logic, no matter what the idealists would have you believe.
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There is only one possible solution to the inflation problem: Stop creating money out of thin air.

Don't let anybody tells you otherwise, especially the professional liars you see on TV everyday.

http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/

jem · Oct 14, 2013

inflation has still be incredibly high since 1962.

cups of coffee at mcdonalds were a nickel in the late sixties.

1.5 acres with a nice house in Greenwich ct was $159,000 in 1976.

we could all go on and on.

the price of bonds or the price of gold has been controlled in part by central bank policy.

they are not necessarily a proxy for inflation.

Quote from billyjoerob:

In one sense, you're right. A bond holder who held from 1962 to 1982 got annihilated. The long term trend isn't much of a consolation when you're getting annihilated by inflation. It's a bit like saying that nuclear power is a great technology most of the time.

But I still think you're wrong. Let's take the period you chose, the last fifty year. 2013 isn't over, so let's pick 1962-2012. Remember that this period includes US withdrawal from the gold standard and the most severe bout of inflation in US history. The geometric rate of inflation over those 50 years was . . . 3.7% . Ooooh, scary.

OK, let's compare a bond investor and a gold investor over that same period.

Gold: geometric return (from $35 to $1650): 7.95%
US 10 year: 6.8% (see http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html )

So gold did beat a US bond holder over that period, but not by much. And the bond holder handily beat inflation. A combination of bonds and stocks would have crushed gold, but whatever. That's stacking the deck. Also remember that I don't think you could really buy gold at $35 in 1962. I could be wrong about that.
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false inflation myths that are false

billyjoerob

xelite777

jem