Can inflation go backwards?

[Really_Not_All_That_Bright]

@HeyHomie

Can someone recommend a book (or a website) that lists the costs of certain day-to-day goods (as well as luxuries) compared to the purchasing power of the average person over time?

Like this?

[Throatwarbler_Mangrove]

Note that this is basically the logic that people use to claim that those “gas boycotts”, where people put off buying gas for a day, will reduce the long-term price of gas.

Unless you’re actually using less gas, then the positive feedback cycle you’re talking about won’t happen. Filling up your tank half-way twice as often doesn’t affect gas prices. Of course, in a recession/deflationary cycle, people do actually buy and use less of many things.

I guess if you keep up the boycott long enough, people will eventually forget that they have cars, and/or get use to a low-fossil-fuel lifestyle that permanent changes take hold?

After all, we are talking about a country where people un-ironically suggest that buying houses is always a good idea because it forces people to save money. Your dirty liberal rational decision making mumbo-jumbo is of no use here.

[mks57]

I read somewhere that a nice suit has always cost about one ounce of gold.

What would happen if the U.S. Treasury issued notes that were redeemable in gold?

[WF_Tomba]

@mks57

i read somewhere that a nice suit has always cost about one ounce of gold.

What would happen if the u.s. Treasury issued notes that were redeemable in gold?

You shall not crucify mankind upon a cross of gold!

[elmwood]

@HeyHomie

For example, the OP mentions a steak dinner costing 35 cents. But what was 35 cents to the average Joe in those days? What would have been the average hourly wage of, say, a factory worker in Chicago? IOW, how long would someone have to work to be able to pay for a steak dinner?

As a kid growing up in the 1970s, I remember that my lower-middle-class parents rarely bought new appliances, gadgets, and the like. Just about every piecemof furniture and durable item in the house, except for my toys and a prized 25" color console television, was purchased years before I was born. Durable goods of most kinds were just very expensive; they saved to buy things as simple as a new toaster., while to me today, even one of the more expensive ($30) toasters at Wal-Mart or Target is something I’d buy without a second thought.

Several years ago, I found a catalog from one the many catalog store chains that were around in the 1970s. The prices for toys and durable goods, in inflation-unadjusted dollars, were about the same, if not more than today. It wasn’t as if all 1975 toasters were made of half-inch steel plate by highly-paid union laborers in Youngstown and Gary; even back then, there was plenty of cheaply-assembled foreign-made products in American stores.

Dig up an old Sears catalog from the 1970s and 1980s, and look at the prices for refrigerators, ovens, and dishwashers. They’re the same as today, which means in inflation-adjusted dollars they were far more expensive. It’s an apples-to-apples comparison, too; a made-in-the-US dishwasher from 1975 versus a made-in-the-US dishwasher from 2008 by the same manufacturer.

[Little_Nemo]

What would happen if the U.S. Treasury issued notes that were redeemable in gold?

The first people in line would redeem them for gold and then the government would run out of gold.

There’s approximately 3,500,000,000 ounces of gold in the world. At its approximate current value of US$750 an ounce, all the gold in the world is worth $2,625,000,000,000. The M2 (which is the amount of money in the United States) as of September 2008 is $7,769,000,000,000.

[Really_Not_All_That_Bright]

@Little_Nemo

The first people in line would redeem them for gold and then the government would run out of gold.

There’s approximately 3,500,000,000 ounces of gold in the world. At its approximate current value of US$750 an ounce, all the gold in the world is worth $2,625,000,000,000. The M2 (which is the amount of money in the United States) as of September 2008 is $7,769,000,000,000.

M2 is much bigger than what he was talking about, though.

There’s only $829 billion (US) in actual physical currency in circulation currently (M1-checking deposits, basically).

[mks57]

@Little_Nemo

The first people in line would redeem them for gold and then the government would run out of gold.

There’s approximately 3,500,000,000 ounces of gold in the world. At its approximate current value of US$750 an ounce, all the gold in the world is worth $2,625,000,000,000. The M2 (which is the amount of money in the United States) as of September 2008 is $7,769,000,000,000.

I was thinking that the government would set the redemption rate at something higher than the current market price for gold, say $1000 an ounce, to avoid that problem.

[Really_Not_All_That_Bright]

@Really_Not_All_That_Bright

M2 is much bigger than what he was talking about, though.

There’s only $829 billion (US) in actual physical currency in circulation currently (M1-checking deposits, basically).

Just to clarify… That part in brackets is “M1 minus checking deposits”. I’m not saying M1 = checking deposits.

[Little_Nemo]

M2 is much bigger than what he was talking about, though.

There’s only $829 billion (US) in actual physical currency in circulation currently (M1-checking deposits, basically).

M2 is the money that people can readily convert into currency. If cash on hand could be converted to gold, then everyone would want to drain their bank accounts, then take that cash and convert it into gold. The value of gold, after all, would be quickly rising as too many dollars were trying to buy too little gold. You’d have every bank and credit union in the country collapsing as their assets were withdrawn.

[WF_Tomba]

@Little_Nemo

M2 is the money that people can readily convert into currency. If cash on hand could be converted to gold, then everyone would want to drain their bank accounts, then take that cash and convert it into gold. The value of gold, after all, would be quickly rising as too many dollars were trying to buy too little gold. You’d have every bank and credit union in the country collapsing as their assets were withdrawn.

Why would there be such a huge demand for gold all of a sudden?

[Little_Nemo]

Why would there be such a huge demand for gold all of a sudden?

Because everyone would be buying it. That’s what you’re doing when you trade dollars for gold. And if you’re trying to trade 7,000,000,000,000 dollars for 3,500,000,000 ounces of gold, then the price of gold will end up around $2000 an ounce. Now if the government is selling gold at its current price of around $750 an ounce, you can see where the incentive is to take their offer. And that’s why everyone would be buying gold.

[mks57]

@Little_Nemo

Because everyone would be buying it. That’s what you’re doing when you trade dollars for gold. And if you’re trying to trade 7,000,000,000,000 dollars for 3,500,000,000 ounces of gold, then the price of gold will end up around $2000 an ounce. Now if the government is selling gold at its current price of around $750 an ounce, you can see where the incentive is to take their offer. And that’s why everyone would be buying gold.

That doesn’t make any sense. You are saying that demand would be high because demand would be high? Why would everyone want to trade their dollars for gold? I can’t buy groceries or pay the rent with a lump of gold. I don’t get it.

[WF_Tomba]

I disagree, Little Nemo.

1. You can always convert cash into gold at the current market price. Just take your cash and go buy some gold! A gold standard would simply add one more gold seller to the market.

2. The price of gold could not go up to $2000 an ounce if the government were selling it for $750 an ounce. Assuming the government’s price were fixed, it would actually act as a ceiling on the price of gold, because the government would be competing with all the other gold sellers.

3. Gold may have a more long-lasting and reliable value than paper money, but in a healthy economy it’s actually somewhat less desirable to have gold than currency, because it’s harder to buy things with gold, as mks57 pointed out. So there would not be a general desire to convert currency into gold.

In sum, the economic effect of a gold standard would be just an artificially fixed price of gold.