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Memories of the 28th Century

Inflation 2022

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I donít often have much conversation with clerks in stores, but yesterday evening, the check out clerk in a CVS apologized for the inflation. I briefly explained that it wasnít his fault, that it is due to policy for the Federal Reserve and the Treasury Department. He then said that CVS sometimes raises prices in anticipation of price hikes.

We spent a while trying to get each other to change his mind. He had a set of facts, and I know the underlying reasons, so neither of us changed our mind.

It seems strange to me that many people think that inflation is simply the generalized increase in prices, and they know nothing about how the Treasury Department funds the U.S. debt by selling 20 and 30 year bonds, close out the bonds with money that has been inflated by rates of two to four percent per annum. The average CCPI (Consumer Price Index) since 2000 has been 2.455% per annum. That was calculated from the CPI Index, link below. That means that the dollar has lost value at that rate, so merchants have to raise prices to make up for the lower value of the dollar, but the Treasury Department gets to repay bonds with dollars that are worth 605 as much as they received when they sold the bonds. There have been periods, when Treasury did better and periods when the dollar lost less value. But the loss of value of a currency is the underlying reason for inflation, and merchants must raise prices to make up for the loss.

Some people have thought that if everything costs more and pays are higher, then what difference does it make. In Italy they tried to make that system work. They created Scala Mobile, the moving scale, where everything would be adjusted annually. That went on for decades, but not everything changes in value at the same rate, and over the years some things had process that were too high or too low, so Italy eliminated the program, and prices and wages were renegotiated. The institutionalized inflation is similar, but it is not as wide reaching, but it does distort prices, ad has made prices disproportionate to wages in many cases. The distortion is easiest to see in regard to real estate prices and rents. Consider that in 1960an average house in most places cost about as much as the average annual of an industrial worker, about $6000. Sixty years later, in May of 2021, the average industrial pay was $36,230, and the average house price was $346,900. House prices increased much more than pay. There are many reasons for the differences, but this shows that inflation is not uniform; there are large differences in inflation rates.

The large, long-term indicator of inflation rate that I like to use is the price of gold, which is the only currency that is allowed under the U.S. Constitution. In 1820, one ounce of gold was worth $20. On November 15, 2022, the price of gold was $1782.20. If we used lawful money, then it would still be $20, give or take a little.

Government policy has caused a large part of the inflation in the U.S., and the inflation has resulted in distortions in the economy. It appears that neither the news media or the education system have been teaching people what inflation is, and the U.S. Treasury Department has caused most of the inflation over the last two hundred plus years. Maybe we should blame Alexander Hamilton, who started the U.S. in the business of selling bonds.


https://www.usinflationcalculator.co...-1913-to-2008/
https://www.bls.gov/oes/current/oes519199.htm

Comments

  1. hellsapoppin's Avatar
    An easier way to reduce or end inflation is to close all overseas tax shelters. There are many articles on this subject online:


    https://www.google.com/search?q=endi...hrome&ie=UTF-8


    Democrats Obama and Biden advocated closing them. Congressional Republicans refuse to do so. Thus the problem is of their making.
  2. PeterL's Avatar
    Quote Originally Posted by hellsapoppin
    An easier way to reduce or end inflation is to close all overseas tax shelters. There are many articles on this subject online:


    https://www.google.com/search?q=endi...hrome&ie=UTF-8


    Democrats Obama and Biden advocated closing them. Congressional Republicans refuse to do so. Thus the problem is of their making.
    Ending tax shelters would make taxes fairer, but it wouldn't do much about inflation. The Treasury could still play with bonds.