National Debt

[C_K_Dexter_Haven]

but the second year inflation raises your salary to 105,000

Careful, Tarkin. There is a difference between the rate of inflation which is some measure of the rise in costs of goods and services, and the rate of wage increase (or “salary increase”) which is only based on pay raises.

In times of high inflation, companies can try to save money by not providing wage increases that pace inflation. In good economic times, and for a person in early or mid-career, wage increases should exceed inflation, and then your point is well made. But, when companies try to hold back wages relative to inflation, you get a reverse effect.

[Tarkin]

@C K Dexter Haven

Careful, Tarkin. There is a difference between the rate of inflation which is some measure of the rise in costs of goods and services, and the rate of wage increase (or “salary increase”) which is only based on pay raises.

In times of high inflation, companies can try to save money by not providing wage increases that pace inflation. In good economic times, and for a person in early or mid-career, wage increases should exceed inflation, and then your point is well made. But, when companies try to hold back wages relative to inflation, you get a reverse effect.

I would agree with the principle. That is why I said that this was a simple case.

But inflation is NOT just rise in costs of goods or services - that is only how we measure it. Inflation is the rate of which all things become more expensive. In effect it is the cost of time.

However people have a huge tendency to call pay raises “Merit Raises” when it was just caused by inflation. Because of this people discount it’s “good” abilities to reduce their debt, claiming they “earned” that 2% raise.

The truth is that because everyone tries to account for inflation, you only really make a profit if the rate of inflation differs from what people thought it would be.

The bank says “I want to make 2%, but inflation will cost me 5%, so I will charge 7%.”

Then if inflation is only 4%, the bank has an extra 1% profit,which YOU paid for. But if inflation is 6%, the bank has lost 1% profit, which YOU pocketed.

[Voyager]

@Chairman Pow

My point being, it seems to me that no matter how many collectors there are, there won’t be enough money taken out of circulation to help stall inflation. Besides, wouldn’t the government (or DoT) have statistics on this and press more money to account for a particular amount being taken out of circulation? Are these coins even a significant factor in the total M1 money supply?

Are there any figures to state approximately how much money is being taken out of circulation and into the hands of collectors? Aside from our state quarters example below. Even if half the country had all 50 quarters, that is: $12.50 * 125,000,000 = $1,562,500,000. Hey, that is a fairly significant number, I don’t quite have the background in economics to figure out if this is significant. I presume that most of these people don’t have all 50 quarters and even then, most will get disillusioned and eventually decide that they need to pay tolls or get a drink from the vending machine and raid their collection.

You’re a bit low there - there are two versions of each quarter, from the Denver and Philadelphia mints, so a collector with a complete collection would have $50 worth of quarters. Since fewer than half are out, the impact on the money supply increases over time. (I suppose you can guess that I have a book). However the impact of even $3 billion on M1 is neglible.

Not that collecting can’t help. San Marino has a significant stamp business. My father worked in the UN Post Office. UN stamps could be used only in the NY headquarters and Geneva, but they had a big business selling them to collectors. I’d have to ask him, but I’d guess that only a tiny fraction of issued UN stamps were ever used for postage. He was in charge of selling them to collectors outside the US, and I know it supported him and a reasonably sized staff, while still making a tidy profit for the UN.