Oh, so are you saying that moderate inflation isn't good, then?

> xeno syndicated wrote:

> Oh, so are you saying that moderate inflation isn't good, then?

No... the only thing I said was "you are being disingenuous in saying my argument was made 'recently.'"  That's it. 

Re: the interest on mortgage debt that could otherwise be paid off.  This is HUGELY significant and is something we should factor in later.

Spam, close it

Okay, let me clarify what I mean by "justify."

With a test case of 3% inflation...

1: What is to say the proper valuation of the load fee is a 2% load?  Actually, when I went online to check, it said the average, adding in all fees, was between .5% and 2%.
2: What's to say 40% is a proper representation of the US tax bracket?
3: On the currency degradation argument, that's bad math on your part, tbh.  Currency devaluation assumes relative inflation (if the US dollar inflates at 5% one year an Canada's inflation rate is 4% per year, the Canadian dollar will appreciate against the dollar... you're basically measuring the same thing twice).  Besides, they're mutually exclusive anyway.  Because inflation is an increase in the cost of goods at home, if I'm importing, I don't care about domestic inflation, but I care about exchange rates.  On the other hand, if I'm buying foreign goods, I don't care about inflation rates, but I care about currency degradation.

Before you put in the currency argument, your required interest was: $48,147.40.
I ran the math.  If you take $100,000, subtract the 2% from the start (which I still believe is a high number), you get a base of $98,000 to invest.

If your mutual fund can give you a 4.22% return on investment average, you break even (actually, it's slightly less... 4.2189746% was the number I found using excel).

$98,000.00
$102,134.60
$106,443.63
$110,934.46
$115,614.75
$120,492.51
$125,576.06
$130,874.08
$136,395.63
$142,150.12
$148,147.40

So... let's put this into perspective.  Average real GDP growth (so after subtracting inflation) was 2.4% between 1998 and 2010 (this includes one recession year and one near-flat year).
Source: http://www.indexmundi.com/g/g.aspx?c=us&v=66

So we're not talking about a mutual fund creating that much more growth than what the US economy already gains.  Considering we're talking about individuals who you are paying for the service of studying the stock/bond markets and understanding the assets in which they invest, it seems like a safe bet to say that they can make a decent return on investment.

Hell, the number you gave me to work with as your estimate was a 4% return on investment.  Granted, if that number reflected the true average growth rate from a mutual fund, and if all your other numbers are accurate, then I will concede that the average mutual fund (note: not all mutual funds) would not be able to compete.  But note that even given the numbers you picked, you are only ever so slightly short.  Heck, with only a 4% growth rate, inflation and taxes only result in a net loss of $3,000.  Three percent... over 10 years.  Honestly... that's not too bad.

By the way... if you want to include mortgages, then I will agree with you 2,000%: If your goal is to save, you should not be investing in mutual funds when you have debt to pay off.  That being said, you should know that in an inflationary period, debtors are actually better off.  You know that person who has a mortgage they're dealing with?  Unanticipated higher inflation rates actually decrease that individual's total burden because mortgages aren't written to adjust to inflation, so the real value you are paying toward that mortgage is actually lower in a higher inflation economy... so without a doubt, don't invest in a mutual fund during an inflationary period if you have debt to deal with. 

Regardless, though, this snippet from the overall conversation in no way represents a disadvantage of moderate inflationary periods, because the tradeoff you're describing would happen regardless of the inflation rate.

> The trend is clearly a significant decline in value of the US dollar relative to the value of its major trading partners, with the exception of Mexico.  This is a clear indicator that it has declined significantly in value universally over the last 10 years.

Oic.

Also, Zarf, do you recognize the losses resulting from the relative devaluation of the US currency over the last 10 years?

"(if the US dollar inflates at 5% one year an Canada's inflation rate is 4% per year, the Canadian dollar will appreciate against the dollar... you're basically measuring the same thing twice).

You have to at least consider counting it twice because different inflation rates are not the only reason for relative fluctuations between currencies.  The US funds, might necessarily have to be converted into another currency for the purposes of investing in capital in a country whose currency had risen relative to the US dollar due to, as an example, higher GDP growth rates rather than lower cumulative inflation.

> xeno syndicated wrote:

> "(if the US dollar inflates at 5% one year an Canada's inflation rate is 4% per year, the Canadian dollar will appreciate against the dollar... you're basically measuring the same thing twice).

You have to at least consider counting it twice because different inflation rates are not the only reason for relative fluctuations between currencies.  The US funds, might necessarily have to be converted into another currency for the purposes of investing in capital in a country whose currency had risen relative to the US dollar due to, as an example, higher GDP growth rates rather than lower cumulative inflation.

Yes, there are multiple other factors.  However, consideration of the two trade off in an individual's actual purchasing of goods.  If I buy a good which is produced domestically, I play an inflation premium, but I do not pay a premium due to the degrading currency value relative to Canadian currency.  At the same time, if I buy an import, I pay a premium due to currency devaluation, but not due to inflation.  You never experience both at the same time on any individual transaction, although you will feel either one or the other.

> xeno syndicated wrote:

> I recognize that exists.  However, that is part of inflation, not a separate entity from inflation.

I think you are not quite right here.

Relative currency devaluation should be considered as a loss of the purchasing power in addition to the loss that occurs due to the devaluation of the purchasing power of the currency due to "printing money" BECAUSE prices of capital could rise in ADDITION to the average rate of inflation due to high demand / scarcity.  Foreign investment, into an economy from a foreign currency devalued by inflation, MIGHT be in a situation where it COULD be doubly affected, and because it is therefore a potential DOUBLE loss, it SHOULD be considered as yet another potential loss.

Actually, a decreased US currency value in exchange markets historically has quite the opposite effect in foreign investment considerations.  Think of China, where currency values are depreciated relative to the dollar.  This gives foreign investors a discount in buying goods from China, so they both invest in Chinese production (because they can use Chinese goods to construct the facilities and hire employees, at a discount) and buy Chinese goods.  In fact, it was you who said:

> xeno syndicated wrote:

> Additionally, the US would lose its monopoly on the use of its currency for international trade, and so you'll get the collapse - err I mean diminished value of the US currency that it needs in order to be competitive in exports once again.

I'm kind of confused on why you're flip flopping on whether or not you absolutely love diminished currency exchange rates! 

But still, that is irrelevant when the discussion which you and I were having was one of the consumer's buying power, not a foreign investor's buying power.  The consumer does not experience any sort of double penalty, therefore it's a bad calculation in that context.

I second that Zarf is correct regarding inflationrate and relative currency devaluation.

Inflation and interest rates (paired with speculation) drives currency-rates. Counting them both and assuming they multiply would be a fallacy, choose one, they should give aproximately the same answer ex ante.

Look,

In an increasingly global economy, where currencies need to be exchanged so as to invest in different economies, the relative depreciation of purchasing power of currencies in addition to the losses incurred due to relative differences in inflation rates between different economies SHOULD be factored into the equation.

For instance.  Let's say US investors wanted to sell bond funds and invest in Chinese companies mining rare earths in China.  They would get hit by the depreciation of the US currency relative to the Chinese Yuan AND suffer further losses due to the rise in prices above the level of average inflation.  Example: say mining equipment and other capital required for the mining operation have risen in price by 45% above the cumulative inflation over the previous 10 years.  Investors would be hit by the relative rise in price of the mining stock too.  Additionally, investors would be hit by that portion of the rise in value of the Chinese Yuan relative to the US dollar that was due to good old fashioned GDP growth rather than printing less money than the other guy.