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Gold is fairly volatile and you are cherry picking dates. The spot price of gold fell 45% from 2010 to 2015, do you think consumer prices fell 45% over the same

Gold is fairly volatile and you are cherry picking dates. The spot price of gold fell 45% from 2010 to 2015, do you think consumer prices fell 45% over the same period?

edoceo 7y ago
It didn't https://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/ https://www.usinflationcalculator.com/inflation/consumer-pri...
roenxi 7y ago
No, I specifically said the gold price change suggested the consumer price inflation rate wasn't measuring real inflation; so obviously I don't think changes in the gold price are having an immediate reflection in consumer prices. And I think in the timeframe you indicate they stopped QE and people noticed the gold price had risen much faster than new money had been created so scaled back. Picking 2010-2015 is cherry picking the date substantially more than 2007-early 2019 when we're talking about QE spurred inflation. If I were cherry picking I'd go 2000 to late 2019 and get 19%. I'm just going a little pre-QE and then the lowest rate of return post-QE so people can't accuse me of cherry picking in favour of my argument. If you pick practically any pre-financial crisis to basically any post-crisis date it looks like a real rate of return. 4-5% real inflation lines up pretty well with what we'd expect inflation to be if we assumed doubling the money supply halved the value for money. So if asset inflation is a little high and consumer price inflation is a little low the theory seems reasonable.
- esoterica 7y ago
  What exactly is your definition of “real inflation”? If you’re including the prices of financial assets then you are using a nonstandard definition of inflation.
  - roenxi 7y ago
    Persistent decline in the purchasing power of money. I forget the technical definition of a 'good', but I count assets as part of 'goods and services' that people want to purchase. Anyway, if the technical definition of inflation is only consumer goods, that shouldn't be the focus when talking about QE. If we are creating money we should focus on what that money is being used to purchase. If inflation is only going to be consumer goods then the main threat of QE obviously isn't inflation because it isn't being used to buy consumer goods. The risk is nobody being able to afford non-consumer goods like houses and other financial assets needed for retirement. My motivation is knowing how much my salary is worth in assets, because I don't spend most of what I earn and I think the political situation would be a lot more stable if everyone got to retire into their own home without having to spend years paying for a banks endorsement that they are worthy to own a home. I dunno, what do you want to call the steady erosion of purchasing power? We have to adjust asset prices by something to account for expected change caused by creation of new money. My understanding is people use CPI, which is not a good choice for reasons under discussion - the CPI isn't capturing the effects of QE.
    - esoterica 7y ago
      The cost of housing is included in the inflation number via rent, not house prices. Rent is the true cost of housing; when you purchase a house you are not only purchasing shelter but also a speculative investment that you expect to appreciate. Only the former is relevant to cost of living. > The risk is nobody being able to afford non-consumer goods like houses and other financial assets needed for retirement. You need to buy financial assets for retirement only so they can be later exchanged for non-financial goods like good and gas. Only the latter prices are relevant to you. It makes a difference whether you pay $1 or $10 for gas, but there is zero difference between buying stock at $100 and selling it later at a X% return, and buying stock at $1000 and selling it later at an X% return. The future rate of return might be relevant for your retirement, but that is both outside the scope of inflation and not proxied by the current asset price increases (which is what you are claiming inflation is supposed to also measure).
  - daxorid 7y ago
    I don't know what a good yardstick would be, but CPI is definitely not it. US CPI weights the entire Medical Products & Services category at 8.68% vs its actual weighting of 18.1% as a fraction of GDP. The average price of a new vehicle hasn't materially changed in 22 years in the CPI due to hedonic adjustments, whereas the actual sticker price is 55% higher.

Gold is fairly volatile and you are cherry picking dates. The spot price of gold fell 45% from 2010 to 2015, do you think consumer prices fell 45% over the same period?

edoceo 7y ago

It didn't https://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/ https://www.usinflationcalculator.com/inflation/consumer-pri...

roenxi 7y ago

No, I specifically said the gold price change suggested the consumer price inflation rate wasn't measuring real inflation; so obviously I don't think changes in the gold price are having an immediate reflection in consumer prices. And I think in the timeframe you indicate they stopped QE and people noticed the gold price had risen much faster than new money had been created so scaled back. Picking 2010-2015 is cherry picking the date substantially more than 2007-early 2019 when we're talking about QE spurred inflation. If I were cherry picking I'd go 2000 to late 2019 and get 19%. I'm just going a little pre-QE and then the lowest rate of return post-QE so people can't accuse me of cherry picking in favour of my argument. If you pick practically any pre-financial crisis to basically any post-crisis date it looks like a real rate of return. 4-5% real inflation lines up pretty well with what we'd expect inflation to be if we assumed doubling the money supply halved the value for money. So if asset inflation is a little high and consumer price inflation is a little low the theory seems reasonable.

esoterica 7y ago
What exactly is your definition of “real inflation”? If you’re including the prices of financial assets then you are using a nonstandard definition of inflation.
- roenxi 7y ago
  Persistent decline in the purchasing power of money. I forget the technical definition of a 'good', but I count assets as part of 'goods and services' that people want to purchase. Anyway, if the technical definition of inflation is only consumer goods, that shouldn't be the focus when talking about QE. If we are creating money we should focus on what that money is being used to purchase. If inflation is only going to be consumer goods then the main threat of QE obviously isn't inflation because it isn't being used to buy consumer goods. The risk is nobody being able to afford non-consumer goods like houses and other financial assets needed for retirement. My motivation is knowing how much my salary is worth in assets, because I don't spend most of what I earn and I think the political situation would be a lot more stable if everyone got to retire into their own home without having to spend years paying for a banks endorsement that they are worthy to own a home. I dunno, what do you want to call the steady erosion of purchasing power? We have to adjust asset prices by something to account for expected change caused by creation of new money. My understanding is people use CPI, which is not a good choice for reasons under discussion - the CPI isn't capturing the effects of QE.
  - esoterica 7y ago
    The cost of housing is included in the inflation number via rent, not house prices. Rent is the true cost of housing; when you purchase a house you are not only purchasing shelter but also a speculative investment that you expect to appreciate. Only the former is relevant to cost of living. > The risk is nobody being able to afford non-consumer goods like houses and other financial assets needed for retirement. You need to buy financial assets for retirement only so they can be later exchanged for non-financial goods like good and gas. Only the latter prices are relevant to you. It makes a difference whether you pay $1 or $10 for gas, but there is zero difference between buying stock at $100 and selling it later at a X% return, and buying stock at $1000 and selling it later at an X% return. The future rate of return might be relevant for your retirement, but that is both outside the scope of inflation and not proxied by the current asset price increases (which is what you are claiming inflation is supposed to also measure).
- daxorid 7y ago
  I don't know what a good yardstick would be, but CPI is definitely not it. US CPI weights the entire Medical Products & Services category at 8.68% vs its actual weighting of 18.1% as a fraction of GDP. The average price of a new vehicle hasn't materially changed in 22 years in the CPI due to hedonic adjustments, whereas the actual sticker price is 55% higher.