On (5), I think it depends on how we define wealth, and just how limited inflation can be, if it’s happening. I.e., if you own a good inflation hedge, I think you can *prevent* your wealth from being destroyed, but I don’t think it improves your Net Worth in a real sense. I may be wrong.

I also had to chuckle at one of @gselevator‘s recent comments-

“Inflation figures that don’t include food and energy are like not counting beer as drinking.”

1. Deflation is scary because out debt payments tend toward fixed. That is to say, when your wages fall (as a result of deflation) you are ok if the price of everything you buy also falls, but if you have fixed debt payments you go bust. That’s the real peril of deflation, ofter referred to a a deflationary debt spiral. The relative leverage of different stratas of society and whether they were experiencing deflation or inflation would explain mass bankruptcies and defaults by certain segments of the population and not others. It may be that the over-leveraged subprime sectors of the economy are experiencing a deflation (based on their prior tendency to use their average dollar to purchase homes, which are falling in price) that may help explain the segmented bankruptcy experience we are seeing.

2. I know how to measure inflation in the way you want. Get ahold of me to discuss if you would like.

3. The Fed will often try to “inflate our way out” of debt problems. As i discussed before, deflation HURTS if you have fixed rate leverage, and in the same vein inflation will save you. That said, if the new money creation.. ie. the inflation.. is being confined to only those segments of the population not burdened with over-leverage, then inflating our way out of the situation will invariably fail.

4. Our understanding of the expanding wage and wealth gap my very well be flawed. There may NOT be a gap being created or expanding, like the statistics show. If, for a sustained period of time, there are differential inflation rates for the different income segments of the population, then there can be differing wage or wealth growth without there being a gap in REAL wages or Wealth being created.

5. There is one problem with including investments in the inflation rate. That is that while their price rising, eroding you CURRENT purchasing power of a dollar, you are actually becoming more wealthy in terms of your overall Net Worth. In essence you can sell you stocks and buy ALOT of things that haven’t experienced the same price increases. Not sure how that all fits in, but it might.