https://youtubetranscript.com/?v=mxzi8zevCLc
Let’s say prices should have gone down by 3% and instead they go up by 2%. That’s 5% inflation in that my cost of living is 5% higher than it would have been had you not had the inflation. And again, if you think about inflation as a tax, when the government taxes you legitimately, let’s say through a sales tax or an income tax, whatever, the government takes your money. Money that you had goes to the government and then the government takes that money and gives it to somebody else, right? You lose your money. But when they tax you through inflation, they don’t take any of your money. You get to keep your money, but they print new money and they give that money to somebody else. Now, when that somebody else spends that money that he didn’t earn, it drives up your prices. So now you pay more. So the government didn’t take your money. They took your purchasing power. So it’s the same thing. And you know, another thing about our CPI that they, how they changed is once upon a time back in the 70s, housing prices were in the CPI and so were rents. And that’s about a third of the CPI, which is shelter. But somewhere along the way, they decided to use something called owner’s equivalent rent instead of actual rent or actual home prices. Now, what is owner’s equivalent rent? Well, it’s a fiction that they made up that nobody actually pays. Apparently the government calls people at random and asks them if they own their home, how much do they think they could rent it for if they were to rent it? And they keep track of those numbers. Now, I don’t know like, you know, who they’re asking. I mean, I’ve owned homes for a long time. I’ve never gotten a call from a government guy wanting to know what I think I could rent my house for. But if you’re not a landlord and you’re not in the rental market, how the hell do you know what you could rent your house for? It’s such a ridiculous way to try to measure the cost of shelter by using a number. Okay, so let me ask you a question about that because I’ve really been curious about that because it’s obvious the case in Canada in particular, like housing and rent prices have skyrocketed in the last eight years. And that’s not reflected in the inflation statistics. And that seems to be a major oversight, at least according to one line of argumentation, because that’s one third of what people spend their money on. Now you could argue, and this is where it gets complicated as far as I can tell, that if what you’ve bought is an asset that generates income and its value goes up, that’s actually not a cost to you, it’s an advantage. You already made reference to that. Well, only if you own the asset. Yes, if you own it. If you want to buy it and the price has gone up, it’s a disadvantage, right? Because now the assets that you want to buy are more costly. Right, so does that imply that a proper CPI that would include the cost of shelter would be calculated on the basis of those who want to buy rather than those who already own? Yeah, because- And I’m trying to figure out how to measure inflation properly here, right? It’s a very complicated problem. If you already own a home, then the cost of buying another one is not as important to you. Of course, a lot of people that own homes, they may want to buy bigger homes as their families grow, and so it would be. But for those people, what’s important are your maintenance costs, your insurance costs, your property taxes. There are a lot of other factors that would be significant to you. If you don’t own, if you’re a renter, then obviously rent is of primary importance to you. You’re paying rent. There’s all sorts of valid ways that the government could measure shelter as a component of the cost of living. But in the United States, they don’t choose any of those valid ways. They choose another way, and they’re doing that because they want the number to be lower. They don’t want to report high inflation, and they even do this as part of the GNP, because when they report GDP, they don’t even do GNP anymore. It’s GDP now that they report, gross domestic product. In order to get the number, they have to deflate it. There’s a deflator which adjusts the GDP for prices, and the government always underestimates that deflator, so the GDP looks bigger than it really is. Because in many cases, economies are actually contracting in real terms. But because the government is dishonest in the way it reports, it reports economic growth, even though there is no real growth. It’s inflation which creates the illusion of growth. That’s another reason that politicians like inflation. And of course, when inflation drives up the stock market and the real estate market, people think they’re richer, right? Because, oh, my house has gone way up, my stock, but it hasn’t gone up. Your money has gone down, right? But people don’t necessarily connect those dots. They think they’re wealthier. But also, if you think about, as I said earlier, inflation benefits debtors. It’s a transfer of wealth from creditors to debtors. Who are the biggest debtors in the world? Governments. And the biggest, most highly indebted government is the United States government. We have 2 trillion a year plus deficits now. And technically we’re not even in a recession. The deficits are gonna get even bigger when this next recession starts. But how are we financing those deficits? It’s inflation. There’s just no other way. Look at the Federal Reserve’s balance sheet. So we know that inflation is gonna be a significant threat. It’s going to reduce the value of money. And so that has to be the single most important factor in driving your decisions on savings, on investing. You know, and even for, in this day and age, if you don’t have a lot of money to invest, you know, I’ve been saying this for years to people. I started talking about it several years ago. People have to stock up on things. You know, buy things that you’re gonna use in a year or two, buy it now. Because it’s gonna be a lot more expensive if you wait. Why hold onto the cash if the cash is gonna lose value? Just buy the things that you’re actually gonna need because those things will retain their value if you’re planning on using them. So here’s the Ponzi scheme question. So because of the efficiencies of the capitalist system, free market system, let’s say, we are generally able to produce more for less. And in some instances, we seem to be doing that faster and faster. So consumer electronics are a good example and price of computation and so forth. And so what that means is that independent of inflation, because of technological progress, things will get cheaper in the future. The future will be richer than the present. So then you might say, if you’re a politician, you say, well, if that’s the case, and if that’s invariably the case, then why not defer our debt to the future? Like essentially, why not borrow from the future? Because the future is gonna be wealthier than the present. And then I wonder, like, if we had a 3% increment in actual productivity per year, then maybe we could tolerate a 2% inflation rate, because fundamentally, the tendency for things to get cheaper because of enhanced productivity would be balanced by that inflationary proclivity. So are the politicians, could you make a case that the politicians are making a good bet because they’re throwing the debt into the future when we’re going to be richer? No, well, they are making a politically opportunistic decision. Yeah, fair enough. Because they’re telling the voters, hey, don’t worry about it, your grandkids will pay for it, right, or whatever. And of course, not all voters have kids, right? Some voters don’t have kids, and so what do they care if somebody else’s grandchildren pay for their program? But the only time you could justify borrowing from the future is if you are creating something that future people will benefit from. Let’s say a capital investment. Let’s say the government is gonna build a bridge, and that bridge is gonna be there for 100 years, right? And people who aren’t even born yet are gonna benefit from that bridge. Okay, maybe they can sell bonds to finance the construction of that bridge that future people will end up paying because they’re gonna have the benefit of that bridge. So you can make an argument for debt to support that. But if we’re gonna borrow money just to pay for welfare benefits or social security benefits where we’re leaving our children and grandchildren with nothing but a bill, right? They don’t have a bridge or a capital asset. The money’s been spent. I see, so your argument basically is that if you’re borrowing from the future isn’t designed specifically to drive productivity, let’s say, then it’s a degenerating bet. Yeah, I don’t think it’s borrowing from the future. I think it’s stealing from the future. You’re trying to steal. Yeah, okay, fair enough, fair enough. A lot of this stuff is gonna backfire because I think the current generation is gonna pay for a lot of this stuff because the dollar’s gonna collapse. We could have hyperinflation. And because the future generations are not gonna pay this. They’re gonna leave. They’ll leave the countries because they’re not gonna wanna be subjected to the confiscatory tax rates.