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by dgudkov 2821 days ago
He is talking about inflation as a way to resolve it, but my personal (and totally unscientific) pet theory is that inflation is already here. The prices are so high not because the real estate is expensive, but because the intrinsic value of money is declining. How come elevated inflation is not reflected in official stats? The problem with counting inflation is that it doesn't account for the loss of quality which is happening in all areas except high-technology products. E.g. while the price (in real money) for a burger in McDonalds can be more or less the same as in the 90s or 60s, the quality went down due to excessive use of herbicides and drugs in farming.

No wonder many people get debts because it's the right strategy when money are losing value. If the real inflation is say 5%, then getting a mortgage at 3.5% earns you 1.5% a year. No wonder stock indexes are record high nowadays -- it's not because businesses excel more than ever, it's because the dollar is worth less.
2 comments
malvosenior 2821 days ago
I fully agree, except that McDonald's actually is a lot more expensive now than in the past, which I think helps make your point:

https://seekingalpha.com/article/4119246-big-mac-index-may-t...

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a008t 2821 days ago
Why is gold doing so poorly then?
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dgudkov 2821 days ago
My guess would be that the intrinsic value of gold is declining as it has no much use outside of manufacturing and jewelry. Gold itself is a complex market heavily influenced by regulations and a few players. But I'm in no way an expert in it.
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AnimalMuppet 2821 days ago
The intrinsic value of gold is set by manufacturing and jewelry; it has not changed much. The investment value of gold is (primarily) set by two things: the need for an inflation hedge, and speculation. Speculation is pretty much dead at the moment (nobody's buying gold because they think gold is going to go up). And gold's use as an inflation hedge is declining, because people are less worried about inflation than they were.

Why were people more worried about inflation recently? Because they thought that QE was going to cause a ton of inflation. As it now looks like the Fed will be able to unwind all of that without triggering mass inflation, people see less need for gold than they did, say, five years ago.

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