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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Mike Johnston who wrote (25904)	12/13/2004 1:43:31 AM
From: GraceZ	Read Replies (1) \| Respond to of 306849

Those two sentences are contradictory Only because you cut out the qualifier at the beginning of the second sentence. If you agree with the first sentence, it means that you are confusing inflation with wealth. I never confuse inflation with wealth. I make a living helping people accumulate wealth. The hardest thing to get them to understand is the effect of inflation on their assets and investments. People who seem to have a good grasp of what inflation feels like on the spending side often have a poor grasp of it's effects on the asset side. People do confuse inflationary gains with wealth and this is another reason governments prefer inflation, people are fooled into thinking they are getting ahead when they are standing still or moving backwards. I said: One reason governments tend to choose mild inflation over mild deflation is to favor those who are trying to accumulate wealth as opposed to those who already hold it. Government imposed inflation is an attack on established wealth. The reason that governments do this is because the majority of the voters are in favor of less concentrated wealth and a smaller gap between rich and poor. Income which is derived solely from collecting interest on established or inherited wealth is considered, by many, to give an unfair advantage to the rich. The problem is that inflation hits the poor wage earner harder even though the rich person loses a larger amount in total to inflation, the poor person loses the ability to buy basic necessities. So in an attempt to wage the war on wealth, it hits the poor and working class hardest. Both inflation and deflation are relatively benign when they are at a very low rate and that rate is predictable. It is when they are at higher rates and that rate is accelerating that it becomes a problem for people on the low end of the economic scale. In one your expenses are always moving up just ahead of your wage increases (inflation) and in the other your wages are falling faster than prices of the things you need to live (deflation). If the rate is known and stable the economy adapts. The problem is that both tend to take on a life of their own and get out of the range of predictable and stable when you have an activist Fed, as we do now. If the rate of deflation is accelerating, than each year, even though prices fall it becomes harder to make enough money to cover those expenses. I grew up with tales from the Depression, the money stock and the GDP dropped by a third over three years. Large numbers of people were displaced from their farms, homes and jobs. In some areas of the country economic activity came to a complete standstill.