4 ms·

If we have deflation, that makes sense. Banks could even charge you to hang onto your money. But if you have any inflation above interest rates, surely you cou

by wisty 17y ago

If we have deflation, that makes sense. Banks could even charge you to hang onto your money. But if you have any inflation above interest rates, surely you could just take out a loan, buy durable goods (houses, tinned fish, iron ore), hide them under your mattress, and make a killing.

hga 17y ago
Yeah, but you need liquidity for a variety of things. You can't easily turn those durable goods into payment for unexpected medical expenses and other emergencies, college for your children, etc. Gold has been favored for deflations since it's "the only liquidity that doesn't depend on someone else's liquidity", but FDR got Americans out of that game when he confiscated the nation's gold supply. It wasn't legal to own gold until a little while after Nixon closed the gold window, and the wild gyrations after that due to a variety of factors didn't make gold look like a good place to put your money (in general, commodities haven't been a good bet against inflation in the modern era as we get better and better at extracting/growing/whatever them). Hmmm, my father is the sort of person who can play this game, he's at times acquired various sorts of goods and sold them generally at a profit (I can remember one time 1/4 of our garage being filled with cases of suntan lotion), and he never played that game. Probably because if you have the sorts of skills and network my father has, there are much better games to play, in his case N startups, a few of which paid off big. Also real estate, but that's mostly passive in his case.
wtn 17y ago
In your deflationary scenario, you'd be better off holding the cash, because there are costs for storage. Your cash would appreciate as much as the price of the goods.
- hga 17y ago
  But holding onto physical cash is not without costs, e.g. you have to provide your own security, it's probably not going to be as good as a bank's, etc.
  - wtn 17y ago
    In the investment domain, cash is shorthand for T-bills, money markets accounts, insured bank deposits. I wasn't referring to actual banknotes. If the banking system fails entirely, banknotes will be equally worthless as accounts.

by wisty 17y ago

hga 17y ago

Yeah, but you need liquidity for a variety of things. You can't easily turn those durable goods into payment for unexpected medical expenses and other emergencies, college for your children, etc. Gold has been favored for deflations since it's "the only liquidity that doesn't depend on someone else's liquidity", but FDR got Americans out of that game when he confiscated the nation's gold supply. It wasn't legal to own gold until a little while after Nixon closed the gold window, and the wild gyrations after that due to a variety of factors didn't make gold look like a good place to put your money (in general, commodities haven't been a good bet against inflation in the modern era as we get better and better at extracting/growing/whatever them). Hmmm, my father is the sort of person who can play this game, he's at times acquired various sorts of goods and sold them generally at a profit (I can remember one time 1/4 of our garage being filled with cases of suntan lotion), and he never played that game. Probably because if you have the sorts of skills and network my father has, there are much better games to play, in his case N startups, a few of which paid off big. Also real estate, but that's mostly passive in his case.

wtn 17y ago

In your deflationary scenario, you'd be better off holding the cash, because there are costs for storage. Your cash would appreciate as much as the price of the goods.

hga 17y ago
But holding onto physical cash is not without costs, e.g. you have to provide your own security, it's probably not going to be as good as a bank's, etc.
- wtn 17y ago
  In the investment domain, cash is shorthand for T-bills, money markets accounts, insured bank deposits. I wasn't referring to actual banknotes. If the banking system fails entirely, banknotes will be equally worthless as accounts.