Friday, 4 September 2009

The one thing you should know about inflation

In the UK, prices always increase.

This chart the price level for goods and services between 1910-2007. During that period prices increase by over 8,000 percent. Through peace and war, recessions, depressions and booms, prices go up. There may have been the odd year of low inflation, but the long run trend is undeniable.

Prices keep going up; but you knew this already. You didn't need of one of Alice's charts to tell you that.


AntiCitizenOne said...

Does it matter as long as wages increase with prices?

OldSouth said...
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Alice Cook said...


I think it does matter if you don't receive a wage, or if your savings disappear.


OldSouth said...

Yes, it matters, because wages do not uniformly rise in an inflationary world. The gap betwixt rich and poor widens. Currency debasement creates poverty, wealth created on the backs of the poor.

Also, as currency debasement continues, people instinctively sense that prices will always rise, and the temptation arises to 'buy now', on credit, which pulls demand forward, and balloons debt throughout the economy.

Also, via 'bracket creep', governments can in effect raise income taxes without enacting legislation. All they need do is debase the currency, and as incomes 'rise' in the attempt to keep up, they hit higher brackets of taxation. It is a positive evil, sometimes but not often addressed in the tax code(and never by Democrats).

Culturally, the lack of stability and good faith push everything toward a 'least common denominator' sort of nihilism. Think of what happened culturally in Weimar Germany(rapidly), and what has happened in the US(somewhat more slowly).

Currency debasement always matters.

Craig said...

I don't want to whinge and complain but I just wish all the odds wernt just always stacked up against me. It's like playing a card game and I continually get jokers.
I want to be a slum lord or a house flipper or a mortgage advisor...
But it's the getting started. I'm trying to save, but inflation will reduce it to nothing. It's better to just not care. Bang a load of kids out, switch big brother on, and crack open a super skol.

dearieme said...

Prices will keep going up until they start going down.

TheBinMan said...

This chart is a bit misleading, it's roughly from the time of the initiation of the FED and it's interesting how the chart goes parabolic from 1971 when the US switched to a complete fiat currency.

I would like to see the chart from 1810 -1910 because i feel this is what the next centuries inflation will look like (flat)
The Federal Reserve Boards are in their final days, their experiment with a debt based fiat currency is about to fail, and fail spectacularly.
Whatever replaces the Fed and the current fiat currency system you can bet your boots it will deliver dramatically lower inflation over the next 100 years.

The problem with human beings is, they have great difficulty imagining a future much different than from their past (ask someone when it's raining if they think it will rain tomorrow)and most people find it inconceivable that house prices, stock prices, wages,etc will fall 80-90% and stay down for a protracted period.

It is not possible they say, well we shall see.

getyourselfconnected said...

price charts before the 1913 (US FED founded) look like flat lines with very little movement. A gold standard does not allow the kind of credit creation that leads to wildly escalating prices. Of course a gold standard does not allow rapid economic growth, nor governemnt deficit spending beyond a very small %GDP. All in all not too much to lose in my opinion.
Great blog.

Cosmos said...

Notice prices went up and down until the mid thirties when the gold standard was abolished. Since then, the amount of money has been increased every year, but one day soon when paper money is at the end of its days gold will be used once again to anchor the value of paper, and its price will cease to trend upward. Unfortunately for those that fail to protect themselves, gold will then be thousands of pounds per ounce and all their savings will be worth 50% less in real terms or more even. Imagine £10 mcdonalds meals, it will cost you £40 to feed the family, and your £100,000 savings will not seem so much. Thank you 'keynesian' economists for ruining an otherwise sound monetary system of gold backed paper money going back more than 1000 years, in less than one century.

getyourselfconnected said...


Anonymous said...

Goods and services may always go up, but this chart shows a line with a hump. If there was an average inflation rate the rate of increase would itself increase with time.
That this chart draws out a flattish line, rather than an upward curving line must mean that inflation has not been steady and in fact has been dropping since 1970.
You lot should be aware that there have been deflationary problems since the early 90s, and even back in the 70s a lot of punters assumed the obvious outcome would be deflation (they were wrong).
Anyway, pick any average inflation rate you like and you will find it doesn't look like that.

It doesn't add up... said...

This chart would be much more revealing if it used a logarithmic axis. That way, periods of faster and slower inflation become immediately apparaent.

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Anonymous said...

Have a bet with the wife that I can buy a pint in the City by the end of the year for £10. Had to pay £9 for two pints today, so half way there.

fajensen said...

Does it matter as long as wages increase with prices?

But, thanks to outsourcing, wages do not go up they go away! The remaining wages may well rise - and they bloody well do for the finance sector!

This is of course reported as a sign of more outsourcing, globalisation and general screwing of employees & unions is needed to alleviate "wage pressure".

The total wage per person is falling - that was why the bubble had to be created to give governments something to tax and the peons an illusion of prosperity.