The One Step Beginners Need Before Buying Any Crypto | CoinPicks Live Class

All right, guys, we're back. I don't see the comment section, but we had a connection issue. Sorry about that, guys. We're gonna have to get some fiber optics moving forward. We had it and then we deleted it, and now we're gonna get it back. It's gonna be really cool, but I forgot where we left off of. Dot, tell me where we left off of.

Let me check that. We left off explaining shelter in the CPI, rent and owner's equivalent rent, rather than home sale prices or mortgage payments. You were connecting that to why someone whose rent stays flat can experience different inflation from the national average.

Great. Okay, sounds good. So yeah, basically the gist is there's different ways. It's not like clean, you know, cookie cutter. Inflation goes up, everybody's wrecked. Obviously, it's the way that they calculate it and things like that, and it's like an official number. It helps, but it's not perfect like that, right? Your scenario might be different, so you should just learn how it works. I just wanted to go a little bit into it. That's called the Consumer Price Index. Remember that? The CPI. It's one of the most important numbers in the economy, the Consumer Price Index, and it launches every month. And that number pretty much determines a lot of what the Federal Reserve does. So the Federal Reserve is looking at that Constantly to make sure that inflation's around 2% specifically. Okay, all right, let's move on from here. So we're at this part here. The Bureau of Labor and Statistics, the BLS, collects prices and spending information to produce the CPI. A main version is CPI-U, which covers urban consumers. These are like different calculations of the CPI. It combines many prices into a number called the index. This gives us a common scale for comparing prices over time. The index number is not a dollar price or an inflation rate. Suppose the made-up index rises from 200 to 210. So this is— it's not the inflation rate, it's— you'll see what it means. So if it goes from 200 to 210, that's a rise of 10 points. Compare that rise with the starting number. 10 divided by 200, it's 0.05. Multiply it by 100, that's a 5% inflation rate. So it's basically a simple calculation. A raise of 10 points is not necessarily a raise of 10%. That's what he said. So he said, they call it basis points, right? So when you hear it's up 100 basis points, that means what? 1%. Yeah, 1%, right? 100 basis points. You can also divide the new number by the old one. We don't need to understand that calculation. It's redundant. Use the same type of index for both numbers. Comparing 2 months gives the change between the 2 months. Comparing that same month a year apart gives a 12-month change. What about your $500 paycheck? In this example, prices are now 1.05 times high. Divide it, whatever. So that's how we get that number. So it's your $500 check divided by 1.05, and that gives you the purchasing power of $476.19. Today's $500 therefore buys what $476.19 bought before using this index. No money has left your account. We have changed the price scale to make a fair comparison. Your own bills may rise at a different rate. Okay, I think we're kind of beating a dead horse right now. We're explaining the same thing over and over again. These are just simpler examples. All right, um, how the official CPI prices together. Imagine collecting prices for several ice cream Okay, it's basically talking about the data aggregation. That's again redundant. What I want to talk about actually specifically is this. In 1983 and 1985, measuring the cost of a home. A home you own is both an asset you can sell and a place to live. It's the sale price and the cost of having a place to live are different things. The older CPI included some purchases, mortgage interest, Property taxes, insurance, and repairs. BLS changed this part of the index to ask what, what would a similar home cost to rent, right? So that helps measure the housing service the owner receives. This approach is called the rental equivalence. It started in 1983 for the CPI-U, January 1985 for the CPI-W. Which covers urban wage earners and clerical workers. These were 2 start dates for the same reform. For owners living in their homes, the measure is called the owner's equivalent rent, or the OER. It estimates rental value. It does not mean the owners actually pay rent. Spending surveys help set housing weight in the index. Rent observed at rental homes help measure its price range. The monthly change is not simply owners guessing what rent would be. So it's basically a way that they calculate the value through rent. Actually, Dot, can you explain to me in 2 sentences why they made this change specifically in 1983?

One sec. BLS made the change to separate the cost of living in a home from buying it as an investment. Because the old method mixed house prices and mortgage financing into consumer inflation. Starting in 1983, they used comparable rents to estimate the housing service homeowners receive.

Now watch this. I'm not asking Dot, I'm asking you guys. Why do you think they wanted to separate housing costs, like the purchase of a housing cost Why would you think they want to change the formula? Go ahead, Jesse. Why do you think?

Because if someone with a lot of money or a group of people with a lot of money are buying houses for investments, then that could actually raise inflation, whereas people who can't afford to buy all those houses aren't experiencing that same thing.

Correct. Does that make sense? Yeah. So to put it simple is that, you know, there's different markets, right? So like, for example, if the cost of homes like shoots up for whatever reason, then the inflation is not going to shoot up. Does that make sense? It's really that simple. So like they had to change the formula. I don't know, I would expect that maybe something happened around that time. So Dot, what was the main reason why they actually changed it? Was there an increase of housing prices or something like that?

One moment.

So they're kind of skeptical. It's going to be political.

Yes. Rising home prices and especially high mortgage interest rates made the old method look too high, even for owners whose payments hadn't changed. BLS had studied alternatives for years and adopted the rental equivalence approach to measure housing services more consistently, not simply to drop housing from inflation.

It's a PR answer. So yeah, basically they're gonna change, they're gonna continue to change it. Like, I'm sure what's gonna happen in the future is the CPI will be changed. They're like, it's like a metric they make, from my experience, it's a metric they make to kind of like accommodate the current scenario, but then if something else happens and breaks the metric, they change the metric. Does that make sense? Yeah. So that's how I always tell people, it's like modern economics is just like some guy made a formula and then the formula breaks and and then they fix it, and then like it's just like a house of cards basically. So a lot of this stuff, like, like we know to understand the spiritual aspect, but a lot of it is just, it's just not a good system, and they just like trying to fix it from guys that made it 40 years ago, and they're all trying to fix it. Does that make sense? Yeah. Yeah, same thing with, uh, $19.99, 2 ways to average prices. Our ice cream costs $12. January