4 ms·

This is backwards. Inflation destroys the value of debt. Poor tend to be borrowers and rich tend to be lenders, so inflation is an equalizer.

clairity 8y ago
no, the wealthy keep their capital in assets with above average returns. the rest of us get to pay for that with below average returns, fees, and inflation.
- travisoneill1 8y ago
  Yes that would explain them being rich. But I'm sure you have heard the phrase "Past performance is no guarantee of future results." What I am talking about here is debt. Owe money on your house? Inflation makes you owe less. Lend money to someone buying a house? Inflation means you get paid back less.
  - rabidrat 8y ago
    It's only "less" if your wages also inflate. But your food and housing prices increase on the leading edge of inflation, and wages lag. And often they never catch up.
    - chimeracoder 8y ago
      > It's only "less" if your wages also inflate. But your food and housing prices increase on the leading edge of inflation, and wages lag. And often they never catch up. Except that's not true. If you're a debtor, the effects of inflation decreasing your debt in real dollars is orders of magnitude more consequential than the increase in your expenses, and that's even assuming your wages don't increase (which is generally not true either).
  - betterunix2 8y ago
    Inflation is typically priced into loans in the form of higher interest rates; this is why bond prices fall (i.e. yields rise) when the inflation rate increases (or more precisely, when people believe inflation will be higher in the future). Also priced in is the uncertainty about future inflation, which is one reason why central banks work to maintain a stable rate of inflation.
- kgwgk 8y ago
  How does the math work out if the wealthy have much more capital than "the rest of us"? Why have you chosen to keep your capital in assets with below-average return if you know which are the better assets?
  - zimablue 8y ago
    Better individual assets or better management of your assets are both gated. Privately held companies, hedge funds, financial managers. The guy who argues the parent point is Piketty in the book Capital.
    - longerthoughts 8y ago
      On top of the access issue is the financial knowledge gap between people of different socioeconomic backgrounds. Not only are people limited in what they can invest in, but they might not even be investing at all.
danhak 8y ago
Most wealthy people borrow significantly even if they have high net worth (think mortgage on multi-million dollar home or investment property). Inflation helps them while they put their assets to work elsewhere. And it helps them far more than it helps some poor person with a few thousand in credit card debt.
- AnimalMuppet 8y ago
  But the wealthy have more assets than debt, so they have more losses than gains from inflation. Sure, they may gain $100,000 on their house, but they lose $1 million on their bond portfolio.
  - deleted 8y ago
    [deleted]
  - longerthoughts 8y ago
    But inflation also implies economic growth which generally raises the value of equity holdings. The impact of inflation is dependent upon asset allocation.
    - chimeracoder 8y ago
      > But inflation also implies economic growth Inflation does not imply growth in real GDP, no. > which generally raises the value of equity holdings. The impact of inflation is dependent upon asset allocation. Ceteris paribus, inflation hurts debtholders (who, incidentally, tend to be wealthy), and it helps debtors (who, incidentally, tend to be poorer).
      - nonbel 8y ago
        Inflation hits prices before wages. Wage increases due to inflation always lag the price increases of the food/shelter/etc people need to buy. Is this controversial?
        8y ago

clairity 8y ago

no, the wealthy keep their capital in assets with above average returns. the rest of us get to pay for that with below average returns, fees, and inflation.

travisoneill1 8y ago
Yes that would explain them being rich. But I'm sure you have heard the phrase "Past performance is no guarantee of future results." What I am talking about here is debt. Owe money on your house? Inflation makes you owe less. Lend money to someone buying a house? Inflation means you get paid back less.
- rabidrat 8y ago
  It's only "less" if your wages also inflate. But your food and housing prices increase on the leading edge of inflation, and wages lag. And often they never catch up.
  - chimeracoder 8y ago
    > It's only "less" if your wages also inflate. But your food and housing prices increase on the leading edge of inflation, and wages lag. And often they never catch up. Except that's not true. If you're a debtor, the effects of inflation decreasing your debt in real dollars is orders of magnitude more consequential than the increase in your expenses, and that's even assuming your wages don't increase (which is generally not true either).
- betterunix2 8y ago
  Inflation is typically priced into loans in the form of higher interest rates; this is why bond prices fall (i.e. yields rise) when the inflation rate increases (or more precisely, when people believe inflation will be higher in the future). Also priced in is the uncertainty about future inflation, which is one reason why central banks work to maintain a stable rate of inflation.
kgwgk 8y ago
How does the math work out if the wealthy have much more capital than "the rest of us"? Why have you chosen to keep your capital in assets with below-average return if you know which are the better assets?
- zimablue 8y ago
  Better individual assets or better management of your assets are both gated. Privately held companies, hedge funds, financial managers. The guy who argues the parent point is Piketty in the book Capital.
  - longerthoughts 8y ago
    On top of the access issue is the financial knowledge gap between people of different socioeconomic backgrounds. Not only are people limited in what they can invest in, but they might not even be investing at all.

danhak 8y ago

Most wealthy people borrow significantly even if they have high net worth (think mortgage on multi-million dollar home or investment property). Inflation helps them while they put their assets to work elsewhere. And it helps them far more than it helps some poor person with a few thousand in credit card debt.

AnimalMuppet 8y ago
But the wealthy have more assets than debt, so they have more losses than gains from inflation. Sure, they may gain $100,000 on their house, but they lose $1 million on their bond portfolio.
- deleted 8y ago
  [deleted]
- longerthoughts 8y ago
  But inflation also implies economic growth which generally raises the value of equity holdings. The impact of inflation is dependent upon asset allocation.
  - chimeracoder 8y ago
    > But inflation also implies economic growth Inflation does not imply growth in real GDP, no. > which generally raises the value of equity holdings. The impact of inflation is dependent upon asset allocation. Ceteris paribus, inflation hurts debtholders (who, incidentally, tend to be wealthy), and it helps debtors (who, incidentally, tend to be poorer).
    - nonbel 8y ago
      Inflation hits prices before wages. Wage increases due to inflation always lag the price increases of the food/shelter/etc people need to buy. Is this controversial?
      - 8y ago