There may have been some truth in that back in the 70s however, over the last 20 years it has been minimal or negative, given that incomes for 99% of the population have stagnated (at best) in real terms.
The biggest influences - both upward and downward - on inflation have probably been a mix of cyclical, population growth and improved living standards in developing countries.
Upward pressure on prices - i.e. demand exceeding supply - was partly driven by the bubble increasing economic activity and partly because of competition for resources (think commodities like oil, food, metals etc) due to factors like increased global population and increased living standards across the developing world - think China, India and quite a few countries across Asia, South America and Africa.
Recent downward pressure - supply exceeding demand - has been the crash reducing overall economic activity. Prior to that though, downward pressure on prices came primarily from increased supply of manufactured goods from places like China. Due to the way inflation is measured, this did a great job of masking inflation during the bubble - think how house, gas and food prices sky rocketed but the inflation figures barely moved.
Wages are obviously a factor, but rather a small one in our current, globalised economies.
I remember having an interest in buying a house. I do not remember the year. They wanted 75,000 for a three bedroom ranch, with a full basement, and a garage on an acre. In what was basically the middle of no where. Nice little setup accept for the location. I didn't really care about the location it was close enough.
My opinion didn't actually count, so a year later we were still looking, but in the meantime the government decided that in order to boost the housing industry they would lower interest rates. Then the american people went insane.
That same house less than a year later had a price of 143,000. The realtor was confident the price was fair. I did actually hear later that that realtor went to jail for promising to buy if the houses didn't sell. Apparently, he would over price the house, then buy it when it wouldn't sell. Then turn around and sell it for a nice little profit of his own.
The thing that got him caught was that people didn't care they were willing to seriously consider the overpriced house. Which would have made him a nice commission but not anywhere near what he could get buying and selling, so he had to lie about the condition of the house to disinterest buyers long enough to buy the houses himself.
Personally, it never made sense to me that people were willing to pay twice what a house was worth just because interest rates were low.
It never stopped. People were buying and selling houes before they were built. It never stopped. Until the bubble burst. It was everyone's faught except the one's who started it, and all the creativity in the would couldn't keep it going, but creativity wasn't needed toward the end. People's faith kept it afloat for the longest time. Once the faith wavered the crash came.
Before they made the original move to help the housing industry I had a savings account that paid six and a half percent. I don't know what they pay now?
The most amazing thing is that they still think that controlling the interest rate will solve all their problems. The truth is that what mn purposes isn't enough. The truth is that inflation is rolling right along even as wages stagnate. The minimum wage decision is probably more of an actuarial event then it is anything else, otherwise why wait.
Why not do it now while the weather is warm. Why wait until the prospect of high heating cost determins where there extra money is going to go.
have the housing market going absolutely crazy again - not even 6 years after the same insanity nearly brought down the global economy.
