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Putting on my academic Econ hat for a moment: There’s probably a stronger argument for including housing costs like rent into CPI than asset value like home val

by ianai 7y ago

Putting on my academic Econ hat for a moment: There’s probably a stronger argument for including housing costs like rent into CPI than asset value like home values. Assets like homes are supposed to be illiquid and relatively constant over time. Ie little change in the underlying fundamentals of the item or changes that can be accounted for in an uncomplicated way. When such stable in underlying value but relatively illiquid assets like homes trade their realized prices are supposed to reflect little more than inflation. So maybe their price changes make more sense on the exogenous side of the equation than the endogenous? Is this argument still valid? It seems like it would be since it still seems moving in and out of a mortgage is a longer (by months) process than moving in or out of a lease.

ianai 7y ago
Replying to myself to avoid an edit as this is a new topic. I’m wondering increasingly lately if oil hasn’t replaced gold and fiat as the underlying backer value of currency. We had a problem in Econ to contrast and compare fiat currency to gold backed currency. Fiat is supposed to not be tied to a scarce resource and thus central banks have the ability to influence market growth through currency growth. Gold or resource backed currency can only grow at the rate new stock is removed from the ground. Of course, oil complicates there concept as oil is irreversibly consumed when it’s burned. The value of it still greatly affects market growth potentials though.
- derefr 7y ago
  The difference with oil is that not everybody exports it. With the gold standard, every sovereign nation worth the name attempted to create a gold-backed sovereign currency, and so was essentially “exporting gold” in some sense (the sense in which you can take their currency outside the country and spend it.) But not all countries are oil exporters, or oil “holders”; and even those who are, are not exporters to the same order-of-magnitude. This creates very clear market effects where e.g. the value of the Canadian dollar at any time is essentially the value of the US dollar divided by the quantity of US oil exports. This would be like different gold-backed sovereign nations declaring a different, floating “ratio” of their fiat currency’s value to their level of gold deposits, such that changes in the price of gold would throw exchange rates around (and some nations having no gold at all, and thus having an exchange rate that measures only how much of some other country’s gold their fiat currency could buy you!)
QuesnayJr 7y ago
CPI does include rent. For houses that people own outright, the BLS tries to back out an implied rent.

by ianai 7y ago

ianai 7y ago

Replying to myself to avoid an edit as this is a new topic. I’m wondering increasingly lately if oil hasn’t replaced gold and fiat as the underlying backer value of currency. We had a problem in Econ to contrast and compare fiat currency to gold backed currency. Fiat is supposed to not be tied to a scarce resource and thus central banks have the ability to influence market growth through currency growth. Gold or resource backed currency can only grow at the rate new stock is removed from the ground. Of course, oil complicates there concept as oil is irreversibly consumed when it’s burned. The value of it still greatly affects market growth potentials though.

derefr 7y ago
The difference with oil is that not everybody exports it. With the gold standard, every sovereign nation worth the name attempted to create a gold-backed sovereign currency, and so was essentially “exporting gold” in some sense (the sense in which you can take their currency outside the country and spend it.) But not all countries are oil exporters, or oil “holders”; and even those who are, are not exporters to the same order-of-magnitude. This creates very clear market effects where e.g. the value of the Canadian dollar at any time is essentially the value of the US dollar divided by the quantity of US oil exports. This would be like different gold-backed sovereign nations declaring a different, floating “ratio” of their fiat currency’s value to their level of gold deposits, such that changes in the price of gold would throw exchange rates around (and some nations having no gold at all, and thus having an exchange rate that measures only how much of some other country’s gold their fiat currency could buy you!)

QuesnayJr 7y ago

CPI does include rent. For houses that people own outright, the BLS tries to back out an implied rent.