The end of inheritance tax on the federal level started in 2001 under the war time president, George Bush. It was cut to 46% that year and gradually reduced every year until 2010 when the tax became zero. It gets murky after that. I quoted my robot friend exactly and it left me with the impression that there is absolutely no Missouri nor federal inheritance tax. My friend Google, however, says anything over $2 million gets the 46% tax. That's not a direct conflict of information, but the AI robot didn't give me the whole story. They warn you when you use those things that the program is a language model not intended to be absolutely accurate. In fact there are cases where it outright lied, but the grammar was eloquently correct.
The moral of the story is that I personally was exempt in the year 2008 because mom left me less than $2 million. Thus there was a tax liability, but I didn't qualify for it.
I don't know how capital gains taxes work with a house that was inherited. Usually the tax is on the selling price minus the cost basis. It costs me nothing because I didn't buy the house. It was given to me as an inheritance. I suppose that can be interpreted as the entire selling price being subject to capital gains tax - not sure if it would be long term or short term however. At this point in time I don't think any of that applies to my estate. This ol' house isn't worth anywhere near a million bucks, but should I make it to age 93, you never know. I recently had to look up replacement value for insurance purposes and they say it would cost $379,000 to replace the house. That's a lot more than I paid for it with the land included. So, 15 years out it could possible be worth a million bucks. Regardless, I'm certain the tax laws will change by then.
We don't need to worry about it, because we transferred the house from Debi's name to her sons name, and I'm sure she will live for the 5-year wait period before the state cannot attach the house. The only thing I worried about was her son still has student loans, and he does some thing which could incapacitate him so he can't earn a living. It's highly unlikely, but I would hate to see the house pulled out from under us for one reason or another.
There is a bright side to it now though. He has to pay the taxes and insurance on it, but not my personal contents, which is really the bulk of what is in here, hi hi.
My youngest daughter decided to educate herself so that she could be a teacher. She did it after she graduated from college with a BA in something other than education and after a few years of work experience. I don't know how much she had to borrow for that education, but it was a lot. Apparently she was paying back somewhere around $3,000 per year ever since she graduated from teachers' school. As you know Joe Biden is trying to forgive a lot of those debts for many people, but teachers seem to have a priority. Even after the pause in forgiveness for most people, my teacher daughter was told she now has a zero balance. Not only that, but since she has been paying so long (more than 10 years I believe) she got a refund for the last five years, or $15, 000. Needless to say she and the rest of the family were shocked and elated. This is the gal who is a bilingual specialist and that might have something to do with the refund, but I guess teachers in general were top priority as far as loan forgiveness is concerned.
I paid for her BA degree as well as for the degree her sister obtained at the same school. Back around thirty years ago the tuition at Northern Illinois University was around $3,000 per year if you were an Illinois resident. It was about $20,000 for out of state students. So, I was able to afford to educate both girls back then, but no way in Hades could I do that at today's costs for education.
The idea of passing on ownership of the house and some investments I also have did in fact occur to me many years ago. Well before we moved down here to Missouri in fact. I didn't rely on logic when I decided I don't want to live in somebody else's house even if it happens to be my own kids. You would think that they would take extra special care to look after me, my wife, and my assets, and I'm sure they would. But, I decided against it back then because if some financial crisis occurred, I don't want to lament the rest of my life how stupid my my kids were to allow it to happen. I felt that I was the pilot of this craft and would be perfectly happy going down with the ship. Well, maybe not perfectly happy, but I do have an instinct to want to be in charge of my own destiny. I think of my elderly uncle who lived on his own in a house he paid for. He had to be put into a nursing home and eventually they decided he won't be coming back home. Reluctantly the kids sold his house. A few months later he died.
Wow, that's great she got so much money back, and her loan forgiven.
I paid for all of my required seminar classes, couldn't get them as an auditor, hi hi.
Remember I told you I bought a house for Barbara's son when he got home from the service.
It was paid for free and clear, and the idiot financed it to get a car.
Mainly because mortgage rates were cheaper than car loan rates.
He was making good money, but even so, he had to get higher insurance on the house, and it never came back down again.
Think what you might about Joe Biden, but it was due to his initiative that my teacher-daughter received a rebate and loan forgiveness for her education. She lives in an old house and thought she would use the rebate money to remodel her kitchen. I'd say it's an average sized kitchen and nothing special about it, but the going price for remodeling it is around $45,000. That did not include appliances, but it did include custom made cabinets. about ten years ago I had my kitchen remodeled for $14,000. I don't know what my daughter is going to do with all that extra cash, but she is very disappointed that it's not enough to remodel her kitchen.
I did something like Barbara's son and took out a loan against one of my life insurance policies. The policy was so old that the loan interest was around 2%. I could have just put it into a savings account and made money off the loan that way. LOL That policy loan was the cheapest way to borrow money at that time.
The kitchen remodeling job would have been about half before Biden got into office and got hyperinflation started.
My first wife borrowed against one of my insurance policies, and I ended up having to pay it back after our divorce.
I didn't even know she did that either! But her name was on the policy at that time, so they said they could do it.
All of my paid-up life insurance policies only come to around 8 grand, but the point is, they are paid up policies.
I have them all set to go to Debi if she's still alive, if not to my son.
I got lazy with the insurance policy loan and did not pay it back for many years. The interest I paid on that loan was far greater than the profit from the cash. They called me a few times over the years suggesting that I pay it back or the loan amount would be deducted from any claim payout. Well the loan was far less than the face value of the policy and I kept telling them I don't intend for my wife to collect on that policy any time soon. Unfortunatelyi, after so many years of paying interest and no principle I surpassed the value of the loan. LOL I paid it off when I realized that.
I don't expect you to admit to how the inflation you speak of originated. The is the fools gold financial policies of the former president, Donald Trump. They looked good in their immediate effects and helped his his business buddies a lot but were destined to create a financial disaster which would have happened even if he were reelected. The tax reduction and the way he handled (or didn't handle) the pandemic would have required the same rise in interest rates as are being applied under Biden. The only other option would be to allow the economy to crash, which a lot of folks think was his intention to begin with. Erroneously labeling today's economic environment as hyperinflation doesn't change the facts in the matter. It only adds to the disinformation the cult of Trump is famous for. You don't have to believe me about it either. Just look up the definition of hyperinflation to see for yourself how you have been lied to.
These late three years have been quite bad regarding price inflation. Yet I personally am reluctant to call all of this hyperinflation, since it only has got to the second digit, not a third, like we had down here in the 80's and early 90's. We're not going to discuss on the miriad causes of this inflationary period, since both of our views may differ a bit.
I've been told that part of the reason why higher education costs are so high in the USA is due to the research programs many colleges have, but I don't really know...
Hyperinflation is out-of-control inflation, in which the price of goods and services rises at monthly rate of 50% or an annual rate of 1,000% or more.
That is not what is going on in the Unites States in 2022-23, nor has it ever happened in this country. As far as I know, it is not happening in any country on earth now or in recent years. According to my friend Google ...
The worst hyperinflation in history was in Hungary from 1945 to 1946, where prices doubled every 15 hours. Second worst was Zimbabwe in 2007 and 2008, where prices doubled every day, and third was the former Republic of Yugoslavia from 1992 to 1994, where prices doubled every 1.4 days.
In today's American political environment the Republican political party is using the therm hyperinflation recklessly to spread disinformation about its political foes. That is not to say inflation is not occurring. In fact it's a global phenomena partly induced by that war in the Ukraine. Nobody is unaffected by inflation, and the sad truth is that people who are least able to deal with it (people on fixed income) are affected the most. That is today's reality. Hyperinflation is not.
Regarding the high costs of ...
EDUCATION: There are a lot of reasons — growing demand, rising financial aid, lower state funding, the exploding cost of administrators, bloated student amenities packages.
HEALTHCARE: There are many possible reasons for the increase in healthcare prices: The introduction of new, innovative healthcare technology can lead to better, more expensive procedures and products. The complexity of the U.S. healthcare system can lead to administrative waste in the insurance and provider payment systems.
It's popular in this country to say the government should not be subsidizing healthcare nor education. That may in fact bring down the costs of running a government, but it will not reduce the costs of obtaining an education or healthcare. As it stands today in America the government is the only resource with enough cash to provide an education and healthcare to all its citizens.
My family came from Germany where they experienced REAL Hyperinflation to the max.
Nuff said about that!
Have you priced dog foods and treats lately? They now cost more than good quality people foods and meats.
If they think I'm going to pay 4 to 8 dollars a pound for dog treats, they are crazy.
My wife has been picking up some meats and cooking them for the pooches.
Most of what she gets is like 1.99 to 3.99 a pound, depending on what it is.
She came home with a whole tray of chicken breasts the other day, and they only came to 1.69 a pound.
And you know it is probably better quality and safer than the stuff bought as dog treats.
This shows the inflation I've seen and been aware of. 10 years represented by two coins. A 1978 0.720 MXP $100 coin containing 0.64 troy ounces of silver. Roughly USD $4.00 whem emited, and a copper - nickel alloy 1988 MXP $5,000 coin, roughly USD $2.00 when emitted.
Even when we didn't get more than 160% yearly inflation, having prices risen within days was worrying. Dad worked in acquisitions, and he had to bargain everything that the company where he worked at buyed on a daily basis. Such kind of inflation was commonly called "galloping" back then.
It was really a tough period. And we don't really want to go there ever.
Attachments
5,000 mexican pesos 1988, a US quarter and a 1978 100 mexican pesos coin.
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Inflation is something that is natural in a free and open economy. It is minimal or doesn't happen under systems where the economy is controlled. Places like China, the Russian Federation, Cuba, and Iran see very little of it, but would you want to live there? In times of revolution the demand for goods is very high due to the disruption of business activity, and thus inflation gallops or goes hyper. Unfortunately even if your country's economy is under government control and supply meets demand, it is not isolated from the rest of the world. If foreign counties are experiencing inflation, then when you buy goods and services from them you must pass on the higher costs to your consumers.
This year the dollar amount tax on my real estate property increases by slightly more than 20%. My income from Social Security increased by 8.7% but did not increase at all from my pension income. It would seem as if the cost of running the county government has been drastically affected by inflation. The good news is that the rate of taxation has been fairly stable, but the valuation of my property has increased due to inflation. The market price of my home has increased 30-40% during the eight years that I lived here so that the increase in taxes have lagged the increase in selling price. My net worth, therefore, has also increased due to inflation.
All this goes to show that if you are wealthy and have investments, inflation is a good thing. If you are poor and on fixed income, you may lose your home because you cannot pay the taxes for it.
Since the full debasing of currency from precious metals, and the extintion of Bretton Woods accord in 1971, Currency value has been determined by a set of factors, among them:
- Size of the economy of the country of origin of the currency.
- Reliability on the country central bank.
- Soundness of fiscal balance.
- Trade balance of the country.
- International debt patment balance of the country.
Since in 1971, the USA economy was the largest of the world and had been the world reference for the previous quarter of century (Since the signage of Bretton Woods accord in 1944), the USD was the reference for the world currencies, and the trade between the world and the US was dominant worldwide. At that time, the exchange rate was fixed at MXP$ 12.50 mexican old pesos for a Dollar.
After the 1973 oil embargo, inflation began to rise worldwide. Mexican President then, Luis Echeverría, began financing nationalizations on several industries and expending lots of money on dubious projects. Then, the Bank of Mexico began to print more money than what Mexican Economy needed, forcing a monetary surplus, resulting in a yearly inflation of 21% compared with the 8.71% published by the FED at that time. As the divergence grew, Mexican Government indebted deeper, and didn't try to balance the fiscal and payment soundly, so in august 31th 1976, Echeverría decreed a devaluation for the Mexican Peso from 12.50 per USD to 22.00 per USD.
Subsequent devaluation decrees, increasing indebtness and lack of fiscal soundness, left Mexico with more devaluations and a chronic inflation that led to the coinage changes I shown you up.
¿How did we stabilize our currency and got out of galloping inflation? Well, we'rre not fully there, but it has been a process. Maybe other countries just complained and didn't rework their economies un such extent. Namely, the process was more of less like this.
In 1983, almost no foreign institution wanted to lend any money to Mexican Government, so...
- First, mexican government began privatizing (selling to particulars) those enterprises that were a burden on fiscal balance. By 1983, government owned banks, corn processing industries, sugar mills, airlines, steel foundries, cement manufacurers, telephony and lots of industries that were not productive. I remeber sugar began to be rationed at the beginning of the 80's.
- Second. Mexican government had to renegotiate external debt. The external debt represented nearly 90% of national GDP.
- Third. Newly privatised industries had to reform to become more productive. By 1986, Mexico signed up to join GATT, General Agreement for Trade and Tariffs, and foreign trade began growing. In 1976, exports were 4 % of Mexican economy. in 1989, 15%, in 2018, 35.3%
- The PECE (Pacto para la Estabilidad y el Crecimiento Económico, Stability and Economic Growth Pact), signed in December 1987. It aimed to stabilize fiscal balance, increase economic growth and reduce inflation. In the end it forced stagnation of the economy, although it was effective in reducing inflation and improve fiscal balance.
- In 1994, among stagnant economy, the payment balance was instable, Interest rates were too high for public finances to keep the foreign payments balanced, and the mexican peso was overvaluated due to the interest rates Mexico had to pay for its foregn debt. The foreign reserves depleted and we faced a sudden stop of the economy since there were no more reserves. The last devaluation decree and the liberalization of the foreign exchange rate for the Mexican Peso (now MXN, instead of MXP, since by decree in 1992, the currency was replaced by the "Nuevos Pesos" at a exchange rate of 1000 old pesos for 1 new peso). The "Tequila Crisis" meant an overnight jump from 6.7% yearly inlfation in september 1994 to 52% in december 1995.
- Autonomy of the Bank of Mexico. Since its creation in 1925, the Bank of Mexico served as the cashier for the government, which, when left uncontrolled meant the origin of infaltionary pressure in Mexican Economy. In april 1994, by decree, it became autonomus, with the sole objective of providing stability to Mexican Currency. Economic growth as a goal is the function of both the Secretariat of Economy and the Secretariat of the Treasury and Public Credit, part of the Executive branch of the Mexcan Governement.
Thank you, Juan, for that excellent narrative regarding the Mexican economy. I lived through those days and recall some of the things you mention, but I was observing it all from a distance. Little of it had relevance to my daily life. The one exception was that Motorola, the company I worked for, started manufacturing in Mexico. Some resentment arose because certain people felt jobs were being taken away from Americans. Others saw the economic benefits of manufacturing at a lower cost. The truth was somewhere between those two extremes in that both countries benefited from the changes in manufacturing.
The value of all currencies is determined by the central banks worldwide. The factors you list are indeed what determines the worth of a country's currency when it comes to international trade. Admittedly it is somewhat of a subjective process for which the central banks receive their share of criticism. There is a general agreement, if not a consensus, and that is what makes global economics viable. You are also correct to point out how the United States Dollar dominated and was critically important to the stability of world trade. While China, India, and Africa are now coming of economic age, America still dominates the international trade market. It remains to be seen how long that will continue given the advances in those countries and the questionable economic policies being implemented in this country.
Mexico had some turbulent years in economic terms and inflation there was greatly influenced by it's foreign financial affairs. In countries that are more stable in terms or their economy, the general population never sees the value of their currency change. A dollar today is the same dollar it was many years ago. The value of that dollar changed little but the goods and services purchased with dollars are now costing a lot more than they did in the good old days. The standard of living here has increased proportionally and that is why people write off the increases as normal inflation or as being the price of progress. Inflation today in America is real, but very little of it, if any, is due to what the central banks of the world are doing.
Reading about the financial disaster in Mexico's history is scary. And, people here in America are fearing something similar is about to happen in this country. I won't comment one way or the other about all that, but I do have a serious question for you as a Mexican citizen. I can imagine life in Mexico isn't much different than life anywhere else. People do what is necessary to make a living. Given all the crazy inflation and Peso devaluation, what did the average Mexican household do to pay for the necessities of life? If yesterday you had a thousand Pesos in the bank account, and today you only have one, that is a shocking and breathtaking change. Yet, you are still here to tell us about it. What does a person need to do to keep up with such drastic changes?
The transition that ocurred when the Bank of Mexico replaced the currency and took away three zeros to it was gradual. Price inflation was stabilizing slowly, so there could be lenghtly campaigns explaining everything. In 1989 inflation was 20%, 1990 26.7%, 1991 22.7%, 1992 15.5%, 1993 9.8%...
Starting in 1993, The Bank of Mexico emmited a new series of coins, taking into account the currency change. the old currency was kept redeemable so the burden to presonal finances was as small as possible. Seeing that equivalences kept buying more or less the same, we got used to the new coinage quickly.
A carton of eggs, maybe a dozen, was worth 3,200 old pesos or 3.20 new pesos, roughly a US dollar in 1993.
In 1992, 1000 old pesos could pay a bus ride. Most common grocery items had prices ranging in the thousands, so it began to be popular to follow the Bank of Mexico propaganda take out three zeros from them. Following is a newspaper page dated march 6th, 1992.
The takeaway from all this is that the value of the Peso changed but the cost of everything else changed too. Thus the effects of inflation were the only burden.
which translates to an increase of 93% in just four years. My original question is still unanswered. How did most people deal with that kind of increase in the cost of living? Did income increase at the same rate? If so, then the impact of inflation had no greater impact than the devaluation of the Peso. It was just different numbers but no loss in purchasing power.
Partly. During the inflationary period, most syndicate confederations were politically very active negotiating salary increases. In some jobs, salary increases kept pace with inflation, and in others, they were left behind.
I the early 80's, minimum wage and contractual salaries were renegotiated at least once a year. By 1987, the worst year, they were renegotiated every two months and there were talks to make monthly renegotiations. During this period, minimum wage purchasing power was severely reduced, and increases to it were negotiated taking as base number the published inflation rate. Many industries relegated the minimum wage only for new workers or as a base salary to which productivity bonuses were added in contracts, so that by 2000, less than 10% of formal workers earned the minimum wage. In the last few years, an effort has been taking place so that minimum wage begins recovering purchasing power, although general salaries had not been growing all across the economy. Following is a chart I found comparing yearly inlfation (blue line) with minimum wage purchasing power (purple line).
In order to make the general salaries to increase across the economy as they should, we need investment so that we can make workers productivity to increase, and that more businesses do pay their due taxes. Evasion and informal economy are a burden on economic growth since they keep workers marginalized from economy growth.
There is much I do not know about economics, and the way things work in other countries just adds to my confusion. LOL Purchasing Power in my understanding means the amount of goods and/or services that can be purchased per given unit of currency. Apparently the unit of currency used in your chart is the minimum wage at a given point in time. In this country something called the Consumer Price Index is used to calculate Purchasing Power.
The above link is to charts published by the Bureau Of Labor Statistics showing monthly CPI Index numbers over the last ten years. This particular group of charts does not include the entire work force but it does show how purchasing power is changing in general. The numbers are the changes in the CPI and do not represent absolute dollars or percentages. The percent change has to be calculated if you wish to know that number. The point to remember is that the higher the CPI number, the lower Purchasing Power becomes (compared to 1982-84 calculations).
The causes of loss of purchasing power include government regulations, inflation, and man-made and natural disasters. Deflation and technological innovation are the reasons for the increase in purchasing power.
And just an FYI, the minimum wage in this country is not universal. There is a standard at the federal government level, but each state has it's own rules for their workers. Thus a CPI index is a better reference point than would be USA minimum wages.
In the chart above, the unit for inflation measurement is the Mexican Peso, and we also have the published CPI indexes. Originally they were measured by the Bank of Mexico, but now they are measured by the National Statistics, Geography and Informatics Institute (INEGI).
Here is the publication of the INPC, the Mexican equivalent of CPI. Following link points to a chart where the INPC data is displayed, and a table can be obtained. Mexican INPC interactive chart
For the previous table where they make an historical comparison of the purchasing power of the minimum wage, For several years, Mexico was divided in three geographic areas to determine the minimum wage, in November 27th 2012, by a decree, "B" and "C" geographical areas combined, son that there were two geographical areas for the determination of the minimum wage, and in October 1st, 2015, again by decree the whole country was consolidated to a single area for minimum wage determination. Now, ¿Who decides what is the amount of the minimum wages. A government comission was created to make the studies and negotiate increases with the industry associations, the syndicate confederations and the mexican government. The National Comitee for the Minimum Wages.
Somebody took the time to tabulate the official amount of the minimum wage for Mexico City against published inflation, and calculated then the purchasing power of the minimum wage as a unit. It was the origin of the chart above.
People earning the least amount of income would naturally be the ones most affected by inflation. There is a tendency in this country to focus on what is called "fixed income" which simply means income does not change significantly over time. Thus if inflation goes rampant, those fixed income folks would go broke quickly. Typically fixed income people are retired and receiving entitlements from the government and/or pensions and thus represent a significant part of the population.
There also are low income people who live week to week off income that is close to the poverty level. The laws regarding minimum wages apply only to companies that have $500,000 or more in annual revenue so that a lot of people are not included. The federal minimum wage is currently $7.25 and was established in 2014. It started at $1.60 in 1971. It doesn't take an economics professor to see that the federal employee minimum wage requirement is not keeping up with the actual cost of living. I will note that some states are paying more than the federal requirement but most of them go by the federal standard.
Given that the economy of Mexico is not like that of America, why Mexico uses minimum wage figures to calculate buying power still remains a mystery to me. That calculation merely states the obvious, i.e., low income people have less purchasing power. If a majority of the Mexican work force earned minimum wages, then it might make sense to use minimum wage figures. While the CPI or INPC is harder to understand, those indexes are indeed a better indication of the present costs of goods and services directly related to purchasing power.
