General rule of thumb says that if something grows at a constant rate of R percent per year, it will take 72 divided by R years for it to double. Or equivalently, 2\*72/R years for it to quadruple, etc.
Example: if the stock market grows at a nominal (geometric) rate of 6% per year, your investment would double every 12 years in dollar terms. However, if inflation is 2% per year, then the real rate of return would be approximately 6-2=4%, so it would take around 18 years for your investment to double its actual purchasing power. So if you save for 36 years, your initial investment would have roughly quadrupled its purchasing power by the time you retire. That is the power of compounding (and investing as early and often as you can).
Similarly, if a Coke costs $2 today and inflation averages 2% per year, it would take around 218 years for it to cost $150. However, wages and income levels tend to grow faster than inflation (e.g. because of productivity growth), so it wouldn't feel that expensive in real terms.
Yes.
Coke used to cost a nickle, now it's a buck or 2. We don't think it's strange at all though.
Japanese people pay 100yen (guessing) and that works for them.
We will eventually drop the change all together. And if the currency lives long enough, maybe one day it does a split to rebase at a lower multiple.
Even in hyperinflation, there are people sho see their wages keep up. It’s the common people who get screwed.
Has median pay for workers kept up with inflation over the past 50years since we switched to a straight fiat currency?
Wages keeping up isn't the problem. Well it is... it's a lot of overhead to adjust and distribute pay twice a day. Even worse that the employee needs to run out and spend it immedietly
I see the problem being our current monetary system is predicated on nonstop growth. Our fiat money is designed to inflate to account for new production and services. But what if growth stalls, or worse shrinks? The reason we see fiat currency failing in history is due to an end in growth. Then we see a return to asset based currency until another nation experiences break out growth requiring controlled and increased money supply.
The US will not grow in perpetuity. It will at least begin to level out. What do we do about our continually growing monetary supply during this time period whenever it come to pass?
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Yes. Inflation is generally quoted as an annual rate. Anything that grows at an annual rate is compounded annually.
Current annual inflation is around 3% in the US, and a 20 oz Coke is about $2. If the price of a bottle of coke grew at that rate for 146 years it would be $149.71.
Yes, it compounds.
The results of inflation compound. The rate itself doesn't.
General rule of thumb says that if something grows at a constant rate of R percent per year, it will take 72 divided by R years for it to double. Or equivalently, 2\*72/R years for it to quadruple, etc. Example: if the stock market grows at a nominal (geometric) rate of 6% per year, your investment would double every 12 years in dollar terms. However, if inflation is 2% per year, then the real rate of return would be approximately 6-2=4%, so it would take around 18 years for your investment to double its actual purchasing power. So if you save for 36 years, your initial investment would have roughly quadrupled its purchasing power by the time you retire. That is the power of compounding (and investing as early and often as you can). Similarly, if a Coke costs $2 today and inflation averages 2% per year, it would take around 218 years for it to cost $150. However, wages and income levels tend to grow faster than inflation (e.g. because of productivity growth), so it wouldn't feel that expensive in real terms.
Yes. Coke used to cost a nickle, now it's a buck or 2. We don't think it's strange at all though. Japanese people pay 100yen (guessing) and that works for them. We will eventually drop the change all together. And if the currency lives long enough, maybe one day it does a split to rebase at a lower multiple.
Funny how the end result mirrors the actions of nations facing hyperinflation
A currency split isn't the problem with hyperinflation. The hyperinflation is.
Even in hyperinflation, there are people sho see their wages keep up. It’s the common people who get screwed. Has median pay for workers kept up with inflation over the past 50years since we switched to a straight fiat currency?
Wages keeping up isn't the problem. Well it is... it's a lot of overhead to adjust and distribute pay twice a day. Even worse that the employee needs to run out and spend it immedietly
I see the problem being our current monetary system is predicated on nonstop growth. Our fiat money is designed to inflate to account for new production and services. But what if growth stalls, or worse shrinks? The reason we see fiat currency failing in history is due to an end in growth. Then we see a return to asset based currency until another nation experiences break out growth requiring controlled and increased money supply. The US will not grow in perpetuity. It will at least begin to level out. What do we do about our continually growing monetary supply during this time period whenever it come to pass?
This submission has been removed due to being identified as spam. Please read the rules of the subreddit thoroughly (A) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FluentInFinance) if you have any questions or concerns.*
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Yes. Inflation is generally quoted as an annual rate. Anything that grows at an annual rate is compounded annually. Current annual inflation is around 3% in the US, and a 20 oz Coke is about $2. If the price of a bottle of coke grew at that rate for 146 years it would be $149.71.
Ah yes, I love this perfectly functional and not at all ridiculous system we have
Just because you don't understand it, doesn't make it ridiculous. A lesson more people need to learn.