A couple of points:
An old car isn't as valuable as a new car. My old sofa isn't as valuable as when it was new. An old house isn't worth as much as when it was new.
It's that volatile value that attaches to land that bubbles higher and higher. I would argue that this isn't a price mechanism increase, but a "collectible market" increase.
You hold on to a collectible in the expectation of a price increase. The holding on keeps the collectible from the market place raising the price still more, which . . . . .
And so it continues. The land component of a current house seems to be between 50% and 70% of the total.
We've had some land crashes in recent history. Japan's land prices crashed and its economy died and hasn't recovered. Land prices are still very high there - too high. So, they search for a solution when it is under their noses. In Asia, the "bank and currency failures" all began with investment in the rising collectible values of land. When the bubbles burst, the banks and currencies sagged and it became bank and currency failures - once again with economists missing the cause as they chase after the effects.
Of course, our S & L's followed collectible land speculation up and up to a point where it killed them. Without the FDIC millions of Americans would have lost large amounts of savings. Regular banks lost too, having forgotten the old-time prudent banking maxim - never lend on land.
Bank of America sold its $2 billion real estate portfolio for $1 billion, but then it's the Bank of America and perhaps can afford a $1 billion bath. I imagine a number of smaller banks must have suffered.
So, when we hear that housing prices are up, or real estate prices have soared - we know this is long-hand for land.
Pushing more money into the economy raises prices. Inflation is not really an economic term. It's a physical term meaning an increase in volume. So "pushing more money into the economy", that is "increasing the volume" is properly inflation. Somehow, the term inflation has affixed itself to the rise in prices, which makes it pretty useless, as other things can raise prices.
Thus we have an "oil shortage inflation" and such like, thus obscuring the problem of governments playing about with money supply.
As with you and Keith, I don't think inflation is intended to defraud - though it does, to a point.
If a government is likely to inflate, the economy adjusts - for example, by real lenders raising interest rates to offset the drop in dollar value.
However, any discussion of money must separate the so-called two functions of money - its role as a measure of value, and it's role as a purchasing medium. The same money cannot effectively perform both roles.
But who cares? Let's get straight to disintermediation.
Harry
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Ed wrote:
Brad, the value of your mortgage is fixed to whatever amount you had to borrow to buy your house. However, the interest you pay is reset every so often - e.g. every couple of years. During periods of inflation, interest rates, like all prices, tend to rise. What matters is whether or not your income rises commensurately. To neither gain nor lose, your income would have to rise at a rate equivalent to the rise in the rate of interest. Considering only your housing costs, if your income rose more rapidly than the rate of interest, you would gain. If it rose less rapidly, you would lose.However, you might also gain or lose through changing property values. During periods of inflation, you are more likely to gain than lose. That can happen even during relatively non-inflationary periods. In my neighborhood, the value of housing has risen much more rapidly than the rate of inflation. It's considered a good neighborhood, with good nearby schools, close to the centre of the city, excellent public transit, etc. Whether or not inflation poses a serious problem depends not only on the rate of inflation, but on the flexibility or fixity of incomes. If your income can rise as rapidly as the rate of increase in prices (rate of inflation), you should not have a problem. If it can't, you may very well have a problem. Collective agreements often contain "COLA" (cost of living allowance) clauses to compensate workers for increasing prices during the period in which the agreements apply. Very rapid inflation can be very unsettling. When I was in Russia a few years ago, prices had soared far more rapidly than incomes, many of which were fixed. This caused tremendous hardship. Personally, I don't buy the notion that, in advanced countries with good central banks, inflation is caused by the issuers of money trying to defraud people of their wealth. It happens for a variety of reasons, and is usually associated with increases in economic activity and rising demand. However, there are some notorious examples of governments devaluing currency, hence raising prices, simply because they didn't know what they were doing or felt they had no other recourse. Germany experience "hyperinflation" following World War One, and Russia experienced something like it during the 1990s. Anyhow, that's enough. As my wife would say, you asked me the time and I built you the clock! Regards, Ed
****************************** Harry Pollard Henry George School of LA Box 655 Tujunga CA 91042 [EMAIL PROTECTED] Tel: (818) 352-4141 Fax: (818) 353-2242 *******************************
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