Every 22 years price doubles...

[Autorotica]

I read an article the other day saying that at 3% inflation, the cost of everything we buy DOUBLES every 22 years.

That being said, if it takes 5 years to save up for a 20K shop build, that build will cost 25K 5 years later.

Discuss...
Chris

 

[LS6 Tommy]

Sounds reasonable to me. When GM made the 1977-1990 Caprice they were almost 3 times the price in 90 as they were in 77..

Tommy

 

[trainer]

There are a couple of ways to approach this
1. Borrow the money to build today. Sure, you will have to pay interest, but you beat inflation and have a shop sooner. You'll add to the value of your home and the shop does not depreciate over time, so you should expect to recoup your investment if you sell. It all depends on your financial situation and what kind of a rate you can get on a loan.

2. save enough money to pay cash in five years and try to invest so you beat inflation.

 

[djjsr]

It started getting out of hand with the Arab oil embargo back in the early '70s.

 

[dumper]

that is assuming that inflation stays at 3%. If it creeps up a few percent, the cost of things will double alot faster. Moral of the story, if you really want, and need something, buy it now, and make it last!

 

[finn]

Actually it will cost $23185 in 5 years at 3% year over year inflation. You should be able to invest at a rate that beats inflation, and if you borrow money your interest would normally be above the rate of inflation so I don't think you can use that arguement.

That said, if you want the shop and can afford the interest rate and payments without jeapordizing your retirement investment plan, go for it. That's at least partially why we work, isn't it?

 

[brownsgolf]

Actually you're numbers are off a small bit. The rule of 72 in finance states that if you dived 72 by the interest rate that will give you the years for the price to double. So if the interest rate is 10% then the value will double in 7.2 years, if the rate is 5% then it will double in 14.4 years, and for 22 years doubling to be correct the rate must be 3.273%.

 

[beaconterraone]

It started getting out of hand with the Arab oil embargo back in the early '70s.

The factor in such inflation was not oil, but the end of the Gold Standard by Nixon in 1971.

 

[Aberdale]

Actually, the current 3.3% inflation rate is very misleading.

The rate of inflation prior to 1980 was based on actual cost of living data, which included groceries, fuel, housing,, etc. The calculation was revised in 1990 to eliminate the effect of some of the more volatile contributors, and was revised again by the current administration to eliminate the effect of fuel, groceries, and housing.

The purpose of the revisions was to "create" a lower CPI so that the government could pay less for promised cost of living allowances (COLA) for Social Security, and pay lower interest rates on treasury inflation protected securities (TIPS), since the bond rates are tied to inflation.

Current real inflation is running about 10% if it were calculated based on the original Voelker formula. The government would be bankrupt if it had to pay COLA and TIPS at the actual rates of inflation.

So the rate is manufactured to fit what the government chooses to pay.

http://www.shadowstats.com/alternate_data/inflation-charts

'dale

 

[allinon72]

We need to start asking ourselves WHY such a high rate of inflation exists. If people really knew (and cared to know) how our monetary system works, things would be much different.

 

[Devildogs]

In the late 80'S gas was about 1 dollar a gallon and the average family income was about $40 K . Today gas is more than 3 times higher and average family incomes are less than double.

 

[finn]

I wouldn't pay too much attention to political fringe hacks with an agenda like John Williams. You will always find consppiracy theory guys like him that see a commie in every corner. They've been there since the beginning of time.

 

[NUTTSGT]

Throwing all the wild *** scenarios out the window. .. . somebody living in a super high cost of living part of the country, trying to keep up with the Joneses, living way above their means, job security or whatever "what ifs" that can be thrown into a scenario.

I think the cost now vs. the future cost of the build need to be taken into consideration when planning a garage/shop. Not just material costs but what are the contractors cost going to be in the future ?

I don't believe that there is just one formula to use for what's right or when to build.

 

[djjsr]

The factor in such inflation was not oil, but the end of the Gold Standard by Nixon in 1971.

I thought we went off the gold standard back around 1933.

 

[CoopVA]

I thought we went off the gold standard back around 1933.

I thought so too. Kennedy attempted to bring it back and dissolve the Federal Reserve and then got killed...


Sent from my iPad using Tapatalk

 

[Ditch digger]

If I remember correctly you can divide the percentage into 72 to get the time to double, it been a while since school and it's a different math in the oil fields.

 

[Autorotica]

Actually it will cost $23185 in 5 years at 3% year over year inflation. You should be able to invest at a rate that beats inflation, and if you borrow money your interest would normally be above the rate of inflation so I don't think you can use that arguement.

That said, if you want the shop and can afford the interest rate and payments without jeapordizing your retirement investment plan, go for it. That's at least partially why we work, isn't it?

D'oh... My mistake and thank you for the correction.

One other thing I have been noticing is the increased(ing) requirements and fees like building permit cost was a little over $1,000, Engineering was $1,700 for a stamped stormwater management plan and $500 fee for E&S plan review. Makes me wonder what else is coming along next.

Chris

 

[hidollartoys]

If you think about it.... It will always cost more in the future than right now.

 

[Filson]

Inflation is a natural componet of the world. If you think our inflation rate is scary, read a case study of Zimbabwe. Anyway, the biggest issue were facing is our standard of liven index... The ratio of the median household income vs cost of living. Sense the 70's the standard of living has dropped. Living is costing more money do to inflation (natural) but our wages are not keeping par. College expense has also grown at almost 3x the rate of inflation. That certainly does not help our economy.

 

[justanengineer]

JMHO but Id much rather buy gradually with cash over time than pay interest. Yes, prices tend to go up, but building over time gives you time/opportunity to find deals. If you can hit a few hardware store/building supply auctions, youd be surprised how much you can shave off the price of a building and/or how cheap high end niceties become.

 

[akdiesel]

JMHO but Id much rather buy gradually with cash over time than pay interest. Yes, prices tend to go up, but building over time gives you time/opportunity to find deals. If you can hit a few hardware store/building supply auctions, youd be surprised how much you can shave off the price of a building and/or how cheap high end niceties become.

Then you end up with a shop that has four sun bleached plywood sides and Tyvek wrap that is ripped from the wind, because you wanted the latest technology gadget, or needed a new transmission as time goes on.
We have lots of houses / shops like this in our area.
Interest is a necessary evil just like insurance.

 

[KEH]

Re gold standard: Going off the gold standard in 1933 was for ordinary private citizens. Gold ownership made illegal, gold coins to be turned in and exchanged for paper. Other countries could still demand of the government gold for balance of payments money. Price of gold was set at $35 per ounce. As long as countries abided by the gold standard there wasn't serious inflation, world wide. Nixon took country off gold standard and balance of payments thing was managed differently, not sure how it works. Gold ownership by private US citizens made legal. We have had gold speculation and inflation ever since.

Biggest cause of 20th century inflation IMO was and still is war. War is very expensive. World War I left England, France, GErmany, Austria broke. Russia broke but they solved it by having a Communist revolution and saying basically "we aint going to pay it" Germany solved the problem by getting Adolf Hitler to power and saying basically 'we are goin to quit paying it" whereupon Hitler started the process over, this time leaving Britain broker and the US in debt. The US forgave Britain and France most of their earlier debts, by some process.

This is an oversimplification and I may have some facts in error.

KEH

 

[finn]

More internet disinformation. There were frequent economic crashes in the 1800's while the gold standard was the norm.

Check your history, don't revise it.

 

[allinon72]

I would get into the perils of fractional reserve banking, but it would just accelerate the inevitable lock of this thread, so I will not.

 

[Glenn M.]

I wouldn't pay too much attention to political fringe hacks with an agenda like John Williams. You will always find consppiracy theory guys like him that see a commie in every corner. They've been there since the beginning of time.

They aren't there?? Where are they??
Inflation is the great robber baron, reduces everyone's standard of living, slowly but surely.
I've personally made do without a lot of material "things" that didn't really matter all that much in the first place - that left money over to do other things that were more of a priority.

 

[KEH]

Not internet disinformation. I said nothing about economic crashes, which is another subject, was just referring to inflation.

KEH

 

[justanengineer]

Then you end up with a shop that has four sun bleached plywood sides and Tyvek wrap that is ripped from the wind, because you wanted the latest technology gadget, or needed a new transmission as time goes on.
We have lots of houses / shops like this in our area.
Interest is a necessary evil just like insurance.

Only if the builder doesnt plan properlly. My parents stick built 40'x100' for example was seriously overbuilt onto an existing foundation and they dont have much over $10k in it. Realistically, between the Anderson windows, 10x12(IIRC?) doors, and other finishing work they shouldve spent that, not to mention 3/4" plywood throughout (no OSB), treated posts, trusses, and other basic supplies, but deals were found and work done in big chunks.

 

[allinon72]

Not internet disinformation. I said nothing about economic crashes, which is another subject, was just referring to inflation.

KEH

They are directly correlated and caused by the all-knowing, mythical Federal Reserve.

By the way, those who like to call out "conspiracy theory nutjobs", do me a favor. Go back 10 years and look at what those "crazy conspiracy theorists" were talking about and see how many of them actually turned out to be true. You might be shocked on what you find.

 

[KEH]

No federal Reserve in 19th century. Common theme for economic recessions, depressions, general economic downturn or whatever term used is a period of enthusiastic speculation, followed by the bubble bursting. Referring to the OP's question and the discussion about infaltion-deflation of prices, the general wisdom used to be that following a war prices dropped. This is not universally true. Case in point: The University of SC got some money together after World War II for an English Department building. Someone in admistration said, well, prices are going down now that the War is over, lets wait a while and the money will go further. It didn't work out that way, there was a building boom after the war and building prices increased, resulting in a smaller building being built.

Re Federal Rereserve, I would like to see a good professional study of the effectiveness of the Federal Reserve because frankly I don't know much about it.

KEH

 

[LEVE]

I've been interested in this topic for years. On website I enjoy is this:

Purchasing Power of Money in the United States from 1774 to Present (1012)

It's quite revealing. For some of you old times it gives you a good idea of your wage structure when you were younger and how much you'd have to make in today's wages. It was a real eye-opener to me now that I'm retired.

 

[KEH]

Interesting. I learned to drive in a 1940 Ford. Later found an old magazine ad which listed the price of a 40 Ford as $895. Purchasing power of $895 in 2012 was $11700?

This is in line with my long held impression that the price of a less expensive car is very roughly the amount of a not too highly paid working man's yearly salary.

KEH

 

[TLR-NUT]

One thing that hasn't gone up is the price of class-8 trucks in Canada. In 1997, I paid $118,000 for a Freightliner FLD-120. Today, you can buy an equivalent truck for the same money. Zero inflation on that! Never mind the fuel prices however.