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Moderate inflation is easily factored into repayment terms. What inflation penalizes is keeping your money under your mattress. This creates demand to use money

by Steko 8y ago

Moderate inflation is easily factored into repayment terms. What inflation penalizes is keeping your money under your mattress. This creates demand to use money now which creates economic activity. > a lot of the interest in Bitcoin is a direct reaction to decades of soft-money policies by the world's governments Bitcoin came from and was nurtured by monetary cranks but they are a small fraction of why people are interested in it lately. Today it's an investment asset or a means to do something illicit like dodge currency controls or launder money.

apo 8y ago
Moderate inflation is easily factored into repayment terms. Constant inflation is easily factored in. But inflation varies greatly depending on prevailing conditions. The ruling party has an incentive to push for inflationary policies to stimulate short-term economic activity, leading to bouts of inflation that can wreck lenders over the long term. What inflation penalizes is keeping your money under your mattress. Inflation also punishes prudent investors - the kind who save for retirement. Rising inflation leads to asset bubbles as pre-retirees seek to avoid being destroyed by inflation. Stocks without earnings and real estate, for example. They all get pushed up to ridiculous levels in the name of chasing return to avoid getting clobbered by inflation. Not to mention the harmful ecological consequences of inflationary policies that encourage consumption over saving.
- pembrook 8y ago
  You have it backwards. Rising inflation does not create asset bubbles. In fact, rising inflation has the ability to deflate asset bubbles. For example, we are arguably approaching an asset bubble right now because of a decade of low inflation and low interest rates. In a zero inflation, zero interest rate environment nobody is incentivized to hold cash(since it returns zero) or CDs thus risk assets (ie. stocks) become inflated.
  - apo 8y ago
    Rising inflation does not create asset bubbles. I can think of three recent examples where inflation/soft money policies triggered asset bubbles: - gold from late 1970s to early 1980s (CPI inflation) - US real estate late 1990s to 2008 (excessive loan origination) - US stocks from mid 1990s to 2001 (lax margin requirement) For example, we are arguably approaching an asset bubble right now because of a decade of low inflation and low interest rates. In a zero inflation, zero interest rate environment nobody is incentivized to hold cash(since it returns zero) or CDs thus risk assets (ie. stocks) become inflated. An inflation rate of zero would incentivize many people and groups to increase cash holdings. With no inflation to keep at bay, cash becomes a real no-risk bet. Those doing so would no doubt the interested in real rates of return. For years, investors in CDs endured a negative real rate of return due to inflation. This forced people out of cash and into ever-risker assets. Throw in mild deflation, and the average Joe could make a real return of a percent or two just by holding cash. It could trigger a stampede of sorts into cash and out of stocks, which explains why central banks are so keen to avoid even mild deflation.

by Steko 8y ago

apo 8y ago

Moderate inflation is easily factored into repayment terms. Constant inflation is easily factored in. But inflation varies greatly depending on prevailing conditions. The ruling party has an incentive to push for inflationary policies to stimulate short-term economic activity, leading to bouts of inflation that can wreck lenders over the long term. What inflation penalizes is keeping your money under your mattress. Inflation also punishes prudent investors - the kind who save for retirement. Rising inflation leads to asset bubbles as pre-retirees seek to avoid being destroyed by inflation. Stocks without earnings and real estate, for example. They all get pushed up to ridiculous levels in the name of chasing return to avoid getting clobbered by inflation. Not to mention the harmful ecological consequences of inflationary policies that encourage consumption over saving.

pembrook 8y ago
You have it backwards. Rising inflation does not create asset bubbles. In fact, rising inflation has the ability to deflate asset bubbles. For example, we are arguably approaching an asset bubble right now because of a decade of low inflation and low interest rates. In a zero inflation, zero interest rate environment nobody is incentivized to hold cash(since it returns zero) or CDs thus risk assets (ie. stocks) become inflated.
- apo 8y ago
  Rising inflation does not create asset bubbles. I can think of three recent examples where inflation/soft money policies triggered asset bubbles: - gold from late 1970s to early 1980s (CPI inflation) - US real estate late 1990s to 2008 (excessive loan origination) - US stocks from mid 1990s to 2001 (lax margin requirement) For example, we are arguably approaching an asset bubble right now because of a decade of low inflation and low interest rates. In a zero inflation, zero interest rate environment nobody is incentivized to hold cash(since it returns zero) or CDs thus risk assets (ie. stocks) become inflated. An inflation rate of zero would incentivize many people and groups to increase cash holdings. With no inflation to keep at bay, cash becomes a real no-risk bet. Those doing so would no doubt the interested in real rates of return. For years, investors in CDs endured a negative real rate of return due to inflation. This forced people out of cash and into ever-risker assets. Throw in mild deflation, and the average Joe could make a real return of a percent or two just by holding cash. It could trigger a stampede of sorts into cash and out of stocks, which explains why central banks are so keen to avoid even mild deflation.