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People are giving too much credit to cryptocurrencies as the only vehicle for dodging inflation. Any asset that rises with inflation (most of them) is a suffici

People are giving too much credit to cryptocurrencies as the only vehicle for dodging inflation. Any asset that rises with inflation (most of them) is a sufficient vehicle for avoiding having your cash devalued. People could simply exchange their domestic currencies for foreign currencies of more stable countries. That's what happens in countries with hyperinflation right now, despite access to cryptocurrency. The only real advantage of cryptocurrency is that it could be transferred around hypothetical government controls. That's more of an extreme edge case scenario, though. To be clear: The US inflation is too high, IMO, but it's nowhere near hyperinflation or government collapse. The average citizen is more likely to benefit from recent stimulus packages than to lose out from it. It's not like everyone keeps their 401K invested in pure cash. That said, we're overdue for interest rates to start creeping up. COVID is coming to an end quickly and the unemployment never really got out of control in the first place. People aren't going to go bankrupt if their mortgages go back to 4-5% instead of 2-3%

nostrademons 6y ago
> People could simply exchange their domestic currencies for foreign currencies of more stable countries Most of the developed nations are competitively devaluing their currencies. If one country does it, they gain a trade advantage: their exports are relatively cheaper on the world market, so consumption flows to their industries and makes them wealthy. Therefore once one country does it, they all have to do it, lest all their export industries become uncompetitive and they lose those jobs. I've heard some speculation (nicely backed up by data [1]) that the real reason we couldn't follow through with monetary tightening 2015-2018 is because it created a carry trade of investors borrowing in Euros and investing in dollars [2], which led to a continual outflow of dollars out the door. If hyperinflation hits it will likely hit nearly all the developed world in short succession. If the dollar goes, all investors are going to dump dollars for Euros, but if they do that the value of the Euro will skyrocket, which means European exports will become super expensive and Euro-denominated debt will be harder to pay off, which will spur European central banks to dump more Euros into the system. As long as we have free capital flows there's no way around this: inflation in one fiat currency will lead to inflation in others. That's why people are looking for non-fiat currencies. (You're right that tradable assets like stocks can fulfill this job rather than cryptocurrency, though.) [1] https://www.pimco.com.br/-/media/global-assets/resources/education/negative-interest-rates/pimco_education_negativeinterestrates_dec2016_fig1.ashx?vs=2&d=20200608172439&hash=6F738875B6A5CD075D764B03B3DDCED114E89C48&la=en-br https://www.pimco.com.br/-/media/global-assets/resources/edu... [2] https://www.ft.com/content/fe099068-169d-11ea-8d73-6303645ac406 https://www.ft.com/content/fe099068-169d-11ea-8d73-6303645ac...
- paganel 6y ago
  > As long as we have free capital flows there's no way around this I think that's the gist of it, and as such I also think that free capital flows will be massively restrained in the scenario you mention (a scenario which I also find very likely). A similar thing has just happened with the freedom of movement for people, a "right" that the great majority of us had taken for granted, and then Covid came and that "right" was forgotten about like it never had existed.
- dageshi 6y ago
  The ECB is a lot more politically constrained than other central banks. It doesn't have a single master but is beholden to various degrees to the member states of the EU and especially Germany which is utterly paranoid about currency devaluation. Don't forget the ECB raised rates during the onset of the financial crisis circa 2007-8 when everyone else was cutting desperately because of their inflation targetting mandate.
AngrySkillzz 6y ago
Buying Bitcoin to hedge inflation instead of just buying TIPS is like saying: I think the price of AAPL will go down, so I'm going to get some lottery tickets.
- jjoonathan 6y ago
  When assets are skyrocketing but "inflation is low" it makes me think the inflation indexes are rigged as an excuse to print money.
  - AngrySkillzz 6y ago
    And you would be wrong. Inflation != asset prices. Don't make me post the global savings glut thing again... Also "rigged" is just conspiracy language. YOU CAN LITERALLY LOOK UP THE INDEX YOURSELF. Channel your inner hacker and do it, learn something, you don't need anyone's permission. I'll even help.[1] [1] https://en.wikipedia.org/wiki/Personal_consumption_expenditures_price_index https://en.wikipedia.org/wiki/Personal_consumption_expenditu...
    - jjoonathan 6y ago
      I'll give you the "Angry" part, but you're going to have to work harder to convince me of "Skillzz." I can imagine a thousand ways to "rig" an inflation index to rationalize money printing. A couple years of latency here, a trimmed mean over there to exclude assets, bingo bango mission accomplished. Money printer goes brrrrr! I actually have spent considerable time poking through the basket definitions and while I was generally impressed by the effort I saw, the extreme sensitivity to minutiae and extreme incentives to obtain a particular conclusion make me hesitate to bet my portfolio on its integrity. I haven't re-implemented their entire methodology in an economic model and run monte-carlo simulations to evaluate their competence in the face of obvious hypotheticals but I'm pretty sure you haven't either. By comparison, "bet on assets to hedge inflation" requires much less concentrated faith in the continued wellbeing of a convenient scapegoat.
      - 6y ago
oarsinsync 6y ago
> People aren't going to go bankrupt if their mortgages go back to 4-5% instead of 2-3% I'd wager that there are more people that cannot afford the costs of servicing their mortgages doubling, than those that can. It may not result in backruptcy, but it may result in them defaulting on their mortgages and literally losing the roof over their heads.
pjc50 6y ago
> The US inflation is too high, IMO 2% is too high? Really? What do you think it ought to be, allowing for a variance of 1-2% around the target? https://www.statista.com/statistics/244983/projected-inflation-rate-in-the-united-states/ https://www.statista.com/statistics/244983/projected-inflati...

nostrademons 6y ago

> People could simply exchange their domestic currencies for foreign currencies of more stable countries Most of the developed nations are competitively devaluing their currencies. If one country does it, they gain a trade advantage: their exports are relatively cheaper on the world market, so consumption flows to their industries and makes them wealthy. Therefore once one country does it, they all have to do it, lest all their export industries become uncompetitive and they lose those jobs. I've heard some speculation (nicely backed up by data [1]) that the real reason we couldn't follow through with monetary tightening 2015-2018 is because it created a carry trade of investors borrowing in Euros and investing in dollars [2], which led to a continual outflow of dollars out the door. If hyperinflation hits it will likely hit nearly all the developed world in short succession. If the dollar goes, all investors are going to dump dollars for Euros, but if they do that the value of the Euro will skyrocket, which means European exports will become super expensive and Euro-denominated debt will be harder to pay off, which will spur European central banks to dump more Euros into the system. As long as we have free capital flows there's no way around this: inflation in one fiat currency will lead to inflation in others. That's why people are looking for non-fiat currencies. (You're right that tradable assets like stocks can fulfill this job rather than cryptocurrency, though.) [1] https://www.pimco.com.br/-/media/global-assets/resources/education/negative-interest-rates/pimco_education_negativeinterestrates_dec2016_fig1.ashx?vs=2&d=20200608172439&hash=6F738875B6A5CD075D764B03B3DDCED114E89C48&la=en-br https://www.pimco.com.br/-/media/global-assets/resources/edu... [2] https://www.ft.com/content/fe099068-169d-11ea-8d73-6303645ac406 https://www.ft.com/content/fe099068-169d-11ea-8d73-6303645ac...

paganel 6y ago
> As long as we have free capital flows there's no way around this I think that's the gist of it, and as such I also think that free capital flows will be massively restrained in the scenario you mention (a scenario which I also find very likely). A similar thing has just happened with the freedom of movement for people, a "right" that the great majority of us had taken for granted, and then Covid came and that "right" was forgotten about like it never had existed.
dageshi 6y ago
The ECB is a lot more politically constrained than other central banks. It doesn't have a single master but is beholden to various degrees to the member states of the EU and especially Germany which is utterly paranoid about currency devaluation. Don't forget the ECB raised rates during the onset of the financial crisis circa 2007-8 when everyone else was cutting desperately because of their inflation targetting mandate.

AngrySkillzz 6y ago

Buying Bitcoin to hedge inflation instead of just buying TIPS is like saying: I think the price of AAPL will go down, so I'm going to get some lottery tickets.

jjoonathan 6y ago
When assets are skyrocketing but "inflation is low" it makes me think the inflation indexes are rigged as an excuse to print money.
- AngrySkillzz 6y ago
  And you would be wrong. Inflation != asset prices. Don't make me post the global savings glut thing again... Also "rigged" is just conspiracy language. YOU CAN LITERALLY LOOK UP THE INDEX YOURSELF. Channel your inner hacker and do it, learn something, you don't need anyone's permission. I'll even help.[1] [1] https://en.wikipedia.org/wiki/Personal_consumption_expenditures_price_index https://en.wikipedia.org/wiki/Personal_consumption_expenditu...
  - jjoonathan 6y ago
    I'll give you the "Angry" part, but you're going to have to work harder to convince me of "Skillzz." I can imagine a thousand ways to "rig" an inflation index to rationalize money printing. A couple years of latency here, a trimmed mean over there to exclude assets, bingo bango mission accomplished. Money printer goes brrrrr! I actually have spent considerable time poking through the basket definitions and while I was generally impressed by the effort I saw, the extreme sensitivity to minutiae and extreme incentives to obtain a particular conclusion make me hesitate to bet my portfolio on its integrity. I haven't re-implemented their entire methodology in an economic model and run monte-carlo simulations to evaluate their competence in the face of obvious hypotheticals but I'm pretty sure you haven't either. By comparison, "bet on assets to hedge inflation" requires much less concentrated faith in the continued wellbeing of a convenient scapegoat.
    - 6y ago

oarsinsync 6y ago

> People aren't going to go bankrupt if their mortgages go back to 4-5% instead of 2-3% I'd wager that there are more people that cannot afford the costs of servicing their mortgages doubling, than those that can. It may not result in backruptcy, but it may result in them defaulting on their mortgages and literally losing the roof over their heads.

pjc50 6y ago

> The US inflation is too high, IMO 2% is too high? Really? What do you think it ought to be, allowing for a variance of 1-2% around the target? https://www.statista.com/statistics/244983/projected-inflation-rate-in-the-united-states/ https://www.statista.com/statistics/244983/projected-inflati...