ra: This much inflation over one decade is not at all wild.
Even if they represented real inflation rather than less than half of it and ignoring considerable drop in prices that should have occured instead of increase, you think that that having quarter of your property stolen is not such a big deal?
From 1800 to 1900 the prices dropped over 50% as the supply of goods grew due to productivity increase! In 20th century the progress was much more accelerated and 2000 dollar should have been buying at least ten times as much as 1913 dollar. Instead it buys 2% as much. How about 99.8% of value stolen by the government just through inflation?
These are market driven, for better or worse the stock market went way up. Housing did not go up that much in the 90's compared to the 80's.
Of course they were! If someone starts spraying sarine on the streets tomorrow and the price of gas masks and caskets increases sharply, you will say that the increase is "market driven" and the deadly chemical attack had nothing to do with it. And if somebody pushes you out the 20-storey window, it's not his action that kills you but the principles of physics, right...
When a government floods the economy with freshly printed money, of course it is a natural market process that causes the corresponding increase in the price goods starting with sectors that get the money first. And even when government stupidly introduces wage and price controls to keep the resulting inflation down, you get shortages, non-wage benefits and non-public economy.
Speaking of non-public economy. Do you think billions of US dollars flowing abroad in exchange for drugs figure anywhere in our trade statistics?
New money was created by Fed and originated in banks and was loaned to home buyers and start-up companies in fasionable sectors - with huge increases in prices of resources and labor used in those sectors as fresh money sucked the limited pool of labor and other resources from elsewhere. As the secondary beneficiaries of that money - home sellers, builders, overpayed professionals - spent that money, whatever they bought further rose in price.
IT salaries went way up because of the tech sector boom and Y2K hysteria.
Sure they did. But where did the money come from that paid those salaries? It was borrowed from the banks. And where did the bank got the money? Not from the money deposited in it - which would have constututed real savings being used elsewhere - but from the money freshly created from nothing, by virtue of lower reserve requirements and fractional reserve system.
Consider a simple example. You put $100 in the bank that you got for creating 100 widgets and the bank loans out $200 to whomever it thinks deserve it. Now there is $300 in economy chasing 100 worth of widgets - which causes the price of one increase 3 times, so you cannot buy the same value your labor produced previously.
I don't know anyone who made $333,000 a year in IT but it might have happened.
I do. And plenty of people with $200+.
IT salaries have come back to earth.
Sure. And soon the value of their houses will too. But not the mortgages they owe to the banks. And not the union wages or government-mandated minimum wages and lot of other services. And all that capital built with real resurces misallocated from productive uses due to money created during boom - excessive (compared to other needs) housing, dark fiber, computer hardware that is getting obsolete, etc? That is value lost.
How about US manufacturing companies ruined by the inflow of imports bought with new paper? When will they come back?
Whatever the shortcomings of the CPI, it is a reasonable measuring stick for inflation.
How could it be if it does not reflect your spending patterns. Take your hours of labor and measure what you buy for it. The constituents of CPI will not add up to 25%. Your housing, your taxes, your retirement income, education for your children? Where is it in CPI?
If so, I must be happy with my portfolio or I would change my investments.
You may be happy with whatever you personally fancy. As I've said - plenty of people benefitted greatly form the redistribution of wealth that is government-caused inflation. You may be one of them if you got overpaid or sold on the top.
It does not change the fact that when buying at 8 yield one pays 100 units of labor for income stream equivalent of 8 units of labor and when buying at 2% one is paying 4 times as much for the same income stream.
miko