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Comment by hew | Hacker News Reader

Currency devaluation (mostly)

Odd you would think that, considering the US dollar is extremely strong right now relative to other global currencies and has been for the last 5 years (save for last year).

I'd love to hear why you think this, and what information sources you're hearing this from? I've seen this line used equally by right wing political groups as well as left wing crypto anarchists who both seem to lack a basic understanding of how finance works.

just because the USD is strong relative to other currencies doesn't mean there isn't devaluation. Cost of living has not tracked salary increases since 2008.

Yes it has. This is exactly what the inflation indexes are meant to measure and apply it to nominal wage growth.

https://fred.stlouisfed.org/series/LES1252881600Q

Maybe it hasn't in SF or NY or other insanely prices areas, but that is 100% because real estate policy in those areas is a disaster.

Do you trust the inflation index (btw, inflation index != cost of living) which encodes choices by some very privileged people (and has questionable decisions, like hedonic adjustments that often have quite arbitrary factors use to periodically renormalize) to reflect the needs and worries of the median person? Go out onto the street and ask people, not even in SF or NY, and find out if they feel like they're doing better or worse, if they're struggling more or less to stay afloat.

Finally, even if inflation exactly tracks nominal wage growth, i.e. real wage value is zero, that's not enough. You would expect that there are real returns to technological advancement that are a tide that makes all boats rise. If that's not the case it is indicative that the structure of modern economy is such that that a very disproportionate amount of returns to global social and technical innovation are sent to the already-wealthy.

> Do you trust the inflation index

Keep in mind that while "the news" reports only a single "inflation" number, the available data is quite granular and is available for a large number of geographic areas[1]

[1] https://www.bls.gov/regions/subjects/consumer-price-indexes....

I trust the opinions of experts over anecdotes from random people on the streets. People always complain, no matter how good or bad things are. Ignoring it is always the best thing to do, and instead look at the numbers. Society is so complex these days that many people aren't capable of analyzing their problems.

Total compensation has been growing very steadily, but healthcare costs have been rising and eating much of that, so while compensation rises, much of it goes to healthcare and wage growth becomes anemic.

Real estate policy is the #1 issue in America in my opinion. We aren't building enough houses, we have too many policies designed to inflate home values (because for some dumb reason a house is considered an investment in america), we make rent seeking behavior too easy. This issue is politically unpalatable though, for both parties as it would require a shift away from the "house as an investment" idea that is doing so much damage to our country.

> I trust the opinions of experts

You're welcome to do so, but these are basically the same experts that have been disastrously wrong in the past.

https://www.youtube.com/watch?v=HQ79Pt2GNJo

Inflation is measured in local markets is it not?

In Canada it is, yet shelter inflation numbers are almost exactly inline with overall inflation in all regions, regardless of whether prices are up over 100% or not. Reality has no effect on the printed number.

Oh sure, this is explained somewhere, but the point is looking at the numbers as a reflection of reality is a poor idea

The money supply did triple over the last decade.

1. my rent

2. my healthcare bill

How has the US exchange rate against other currencies impacted your rent and healthcare bill?

You are focusing on a currency’s value relative to other currencies.

A currency can be devalued because cost of living can go up without any appreciate in quality of living—your USD buys less assets than it did in 2008.

Just because USD has been doing better than the Euro doesn’t mean inflation isn’t occurring.

This is the main issue that both the right wing gold bugs and left wing crypto anarchists don't seem to understand: Steady modest inflation is a good thing.

If there was no inflation everyone would be incentivized to just hold cash under their mattress and not invest into the economy. When you put your money in a CD or money market account hoping to keep up with (or beat) inflation that money then goes to pay payroll for corporations via the commercial paper market. When you put your money into a savings account hoping to generate interest to keep up with inflation your money gets lent to local small businesses and other people to buy mortgages. Inflation creates inertia in the economy.

We don't have an inflation problem. What we have is a wage growth problem. Crypto nor gold bars will ever do anything to solve that. The issue has nothing to do with currency.

Those are both problems that have nothing to do with currency or the economic concept of 'currency devaluation.'

Inflation has barely been present in the US for the last 10 years compared to historical levels.

The reason your healthcare bill and your rent have increased much faster than inflation (I'm guessing you're in the bay area) is because of US federal government failings in the case of healthcare; and in terms of rent the geographic limitations, rapid growth, and local government failings of the area you've chosen to live in.

This is the definition of currency inflation.

Goods and services costing more in my currency than they used to—and trust me, the housing hasn’t gotten any nicer, nor my healthcare services.

Thats not really inflation.

My housing and the healthcare services I pay for are the same as in 2008. I now have to pay twice as much in USD for the same goods and services.

That is the definition of currency inflation.

Exchanging more for the same.

That is an adjustment of relative prices, inflation is the generalized increase in nominal prices of all goods.

There is something called "asset inflation" but its not a correct terminology.

When housing and healthcare are >50% of my expenses, how much more general does the increase have to be to be counted as “inflation”?

It has to affect your salary too, which tends to be >50% of your income.

Can you elaborate on this.

https://www.xe.com/currencycharts/?from=USD&to=EUR&view=10Y

This shows that USD is actually worth more than the Euro over the past 10 years.

What exactly is the USD devalued relative to that caused a stock market boom?

has cost of living tracked wages?

Cost of living is measured via the "basket of goods" used in inflation measurements. Inflation has been extremely low over the past decade. I think the likelier conclusion is: the market isn't up because of currency devaluation.

no it's not. Cost of living is a different calculation than CPI.

Ok, I'll play: show me a reputable COLI that went up 323% over the past decade.

It could be (which I believe) that both the USD and EUR are worth less to real goods and services while the USD is relatively higher than the Euro.

> It could be (which I believe) that both the USD and EUR are worth less to real goods and services while the USD is relatively higher than the Euro.

Sure but the original poster made a specific claim, how does this give us a huge bull market?

I mean currency devaluation leads to inflation which is how you cool a market and we are trying to explain why we have a bull market. So this fails a very simple first pass.

I would be replying to the original poster if I were replying to the original poster, wouldn't I?

I was replying to the post with a claim about EUR and USD "relative values."

That's measurable via inflation, which has been remarkably low over the past decade.

Usually, yes. However you can substitute lower quality ingredients, or you can implement a "shrinkflation" strategy:

https://steemit.com/money/@dedicatedguy/shrinkflation-sellin...

You can also manipulate prices at scale where you raise the price of some goods in the CPI basket while lowering others keeping "inflation" or CPI "low." If the marginal profit on the goods you're lowering was already relatively high and the marginal profit on the goods you are raising was low, you could find a point of arbitrage where you come out ahead on profit without moving the needle on inflation.

Real goods -- like pieces of companies (stocks) or tangible assets (housing, etc).

In my layman opinion -- the western central banks are in cahoots continually "soft landing" (optimistic) or manipulating (pessimistic) and at an accelerated rate since 2008.

The marketing isn't booming up. The nominal metric is falling rapidly.

Likely true. And it's most affecting the general public.

I would argue it's most affecting those who are particularly exposed to fluctuations in the currency market.

Sure and that is going to me a lot of people who live pay check to pay check paid in a constant dollar amount of people who have a little savings but must store it mostly in dollars.

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