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Author Topic:   Phat's Bookshelf
Posts: 5969
Joined: 05-02-2006
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Message 56 of 174 (904265)
12-24-2022 6:18 PM
Reply to: Message 54 by Phat
12-24-2022 9:27 AM

Re: Bonds or Gold?
Does your math adjust for inflation?
Time for you conduct a reality check, especially given that this subtopic compares bonds and gold.
I'm not a trained economist nor do I play one on TV, but obviously inflation would affect the value of all forms of investment equally, including bonds and commodities like gold. Bringing up inflation does nothing to differentiate between investing in bonds versus investing in gold adds nothing to the discussion ... except that in Taq's Message 48 to which you are not quite replying he did point to gold having lost value whereas a bond's increase in value is guaranteed by the bond, so if we also factor in inflation's effects on the return on investment (ROI) in "absolute dollars" gold would still lose out to bonds.
By my understanding, nobody can accurately predict rates of inflation, so it makes no sense to try to specify in an investment contract the effects of inflation on the "absolute dollar" value of an investment's interest rate returns. Yes, there will be such an effect as there is to everything in practical economics, but it's not normally factored in in highly specific terms.
The closest use for the accounting of inflation that I can think of is in Cost Of Living Adjustments (COLA) such as are performed periodically for certain sources of income; eg, Social Security benefits, military pay.
Both of those COLAs come to mind for me because both affect me. My military retirement pay is a fixed percentage of the active duty pay for my paygrade and time in service (as of when I retired, I think, but I don't know because I served far past the maximum TIS for my paygrade); this year we got an 8.7% increase as opposed to the usual 1% to 2% increases of the past (I seem to recall an occasional 0%). I haven't heard yet what we'll get for Social Security, but if it's also 8.7% then I will be very disappointed with how they are treating and shortchanging our troops.
The Republicans keep trying to cut Social Security benefits. COLAs are based on such economic indices as the consumer price index. I cannot find the details on this, but Social Security COLAs used to use an index which more accurately tracked cost increases for what seniors are more concerned with, but the Republican Congress replaced that with another index (Consumer Price Index, I would assume) which deals with other concerns and which provides lower increases in benefits.
Breaking News!
Having just written the above, I looked into US Military Pay on Wikipedia, which took me to the other index, Cost of Living Index. There I found this discussion:
The United States Consumer Price Index (CPI) is a price index that is based on the idea of a cost-of-living index. The U.S. Department of Labor's Bureau of Labor Statistics (BLS) explains the differences:
The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure. BLS has for some time used a cost-of-living framework in making practical decisions about questions that arise in constructing the CPI. A cost-of-living index is a conceptual measurement goal, however, not a straightforward alternative to the CPI. A cost-of-living index would measure changes over time in the amount that consumers need to spend to reach a certain utility level or standard of living. Both the CPI and a cost-of-living index would reflect changes in the prices of goods and services, such as food and clothing that are directly purchased in the marketplace; but a complete cost-of-living index would go beyond this to also take into account changes in other governmental or environmental factors that affect consumers' well-being. It is very difficult to determine the proper treatment of public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime that would constitute a complete cost-of-living framework.

Also, when I spoke above of "absolute dollars", I know of no such metric, but rather know that it must exist as a reference point. For example, we often hear of the current cost of certain things in terms of "in 1960 dollars" or of past costs in terms of "today's dollars". So such a metric must exist, otherwise cost comparisons across time ("diachronically") would be impossible. I just don't know what it's offcially called or how it's officially defined.
Examples abound as we research the past. For example, misled temporally by the movie, 1941, I searched through the Los Angeles newspapers of December 1941 for coverage of the Battle of Los Angeles (AKA "Great Los Angeles Air Raid") which actually took place 24–25 February 1942. Along the way I saw many grocery store and restaurant ads. The only one I remember (that research was in the mid-80's) was a diner which offered a complete turkey dinner for $0.25.
Similarly, while rewatching the beginning of The Day the Earth Stood Still (1951 -- the year I was born, BTW), in the background I saw that a child's haircut was 25 cents. Google tells me that it's now about $30 (as a senior, mine is $20).
In the 60's, I saw that a grocery clerk made $400 a month. That was my older sister's husband's pay and they lived in a nice new apartment paying $100 a month rent, which was within the standard budget estimate of a quarter of your income going to housing. Then their first house cost them $18,000 -- The Game of Life at that time had the price of a house at $15,000. As I was approaching graduation (Class of '69 -- sounds more fun that it was), the big housing boom of Orange County, Calif., was underway with houses selling for $86,000. Not even out on my own yet, all I could think was that I could never possibly afford to buy a house. Now my condo valued at about $450,000 is paid off and that older sister and brother-in-law of mine have just sold their house for just over $1 million.

This message is a reply to:
 Message 54 by Phat, posted 12-24-2022 9:27 AM Phat has replied

Replies to this message:
 Message 57 by AZPaul3, posted 12-24-2022 8:57 PM dwise1 has not replied
 Message 77 by Phat, posted 12-27-2022 8:17 AM dwise1 has not replied

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