Your Private Inflation

Yesterday I started to declutter the hundreds of items in the small office room from which I am currently writing these lines. (I do not want to read any comments about how desperate somebody must be to start such a process without his girlfriend pushing him or a visit of Mom on the timetable.)

One of the things I managed to get rid of (breaking up is never easy) are old bank account statements. Actually, those were the last statements I had on paper - print-outs of the the first online banking statement I received as a PDF file. Since then, I have always stored them electronically, transferred them from PC to PC, from hard-drive to hard-drive. 

What these statements allow me now is to look back on December 2001.Things changed ...

Roughly ten years ago you could find most numbers on the statements in EUR and DEM (Deutsch Mark). The conversion factor (1.95583) was clearly stated - today all references to DEM have gone.

The more money you had on your call money account (Tagesgeldkonto), the higher the interest rate was in the past - ranging from 1,4 % to 1.75 % for sums exceeding 25,000 EUR. For six month fixed deposits you got 2.75 % - for 5 years 3.5 %.

Today you have teaser rates on call money - 1.75 % for up to 10,000 EUR and then dropping to 0.5 % for sums above 50,000 EUR. (Note the difference in value of the last limit where conditions change). The teaser rates are designed to attract new customers, as it's hard to get any interest on money today. The more money you put into the account the more the rate drops, as the banks cannot match the teaser rates when lending out the money. Fixed deposits yield 0.5 % ranging form 1 to 3 months. Longer periods are not available. Above 50,000 EUR and for a 3 months period you get astonishing 0.9 %. 

Interest to be paid on your giro / checking account within your credit line is 9.9 % - if you exceed it, interest rises to 14.4 %.  This has not changed much as it was 10.0 % and 13.0 % in the past. But the spreads ... tremendous. 

Now for the 'private inflation':

Filling up at the gas station cost around 25 EUR back then. Ten years later we are at 76 EUR. Well, my car got bigger, too - so when this was close to 40 or 45 liters in the past (do you remember how big your tank was 10 years ago?), it's close to 55 liters now - Diesel in both cases. When I do the math, I come close to a 9 % increase of diesel prices every year.

My monthly telephone fee  (fixed line with ISDN internet) was around 70 EUR - today its more like 100 EUR, but of course with much more bandwidth and monthly software features. No inflation here I would say. 

My spending habits also changed: while I did withdraw  a couple of 100 DEM back then every fortnight, the line items have increased. From the crate of beer to the box office ticket - everything is paid via debit card today. The old statements provide much less information.

Monthly down-payment on electricity/water was 22 EUR (living single) - it's 76 for electricity only now (with a flat double the size, and 3 people). Rent you cannot really compare at all - I moved 100 km closer to Munich. 

Participation fee for the half marathon in Altötting was 15 EUR back then - it would be 31 today. And 6 months of fee for the weekly paper "Wirtschaftswoche" increased from 125 DEM to roughly 100 EUR.

My after-tax salary increased by 150 % within this time frame. But it's not the same job any more; I head a small team now; responsibilities have increased; my experience; and this is after some optimization regarding healthcare fees. What the increase was before tax I was not able to figure out so quickly - but I assume it was a little lower, as tax rates declined somewhat. (But gut feeling could really trick you there ....)

So, roughly speaking, expenses have doubled in 10 years?  Roughly a 7 % private inflation rate? But I was lucky - as I could advance my income faster. Will I be able to keep this up? What happens once I retire? Will inflation increase over the next years - given the EURO-crisis? I don't want to discuss this here and now. Just a final statement: I will not throw away my paper files, as I could really gain some insight (and even entertainment) going through them. Let's do it again in 2022.

Two questions still open

In my last post I addressed two questions:

1) What does it take to become a bank, being allowed to create money and thus gain interest on this new money?
2) Why do governments not create money into existence by spending it, but rather lend it from central banks and pay interest on in?

Today I am 230 pages further down the road thanks to a great reading suggestion by Ulrich:

Bernstein provides us with a great piece of education and I think for the first time I really understand the Fractional Reserve System. On page 36 he comes close to question 2: "But our Government is legally and morally prohibited from financing its expenditures by printing the money to do it. The Government is in the same boat as the rest of us - it has to has to finance its expenditures by obtaining money from somebody else. This it normally does by levying taxation on us or by borrowing the money from us. But the important point is that the Government cannot spend money indefinitely without replenishing its bank account. [...] Where then can we look for the source of money? Indeed, to the banks themselves!"

Bernstein describes the monetary system of the USA very well. While reading his booklet, written in the 60ies but not outdated at all, you will learn a lot about the FED, its members, money creation, the gold standard, exchange rates. Being written in the 60ies, some eye-openers might surprise you, as the perspective is of course different then ours.
Gold is traded at 35 bucks an ounce, a USD is worth 4 Deutsch Marks or 5 French Francs. This is 45 years in the past - hopefully we will live another 45 years. What will be the exchange factors by then? Thought provoking ....

Still my questions did remain open. Why is a limited number of banks allowed to profit from creating money? Why does the government not keep this rights to itself? Or at least, shouldn't we all have the same rights?
I showed some own initiative. Knowing that the banks create the money, I took a look at the FED of New York, one of the 12 members of the Federal Reserve System of the US. (to be continued ...)