4 ms·

>Inflation isn't a tax on savings because you're not supposed to be saving currency. It is a tax on savings whether currency is "supposed" to be saved or not.

>Inflation isn't a tax on savings because you're not supposed to be saving currency. It is a tax on savings whether currency is "supposed" to be saved or not. All retail banks offer savings accounts specifically for this purpose.

arcticbull 5y ago
It's a "tax" on un-invested capital, sure, in the same way a fine is a "tax" on undesirable behavior. I think tax is the wrong word because a tax implies a kind of tithe on top of desirable behavior. A fine implies that you are being penalized for undesirable behavior. I think the latter is a more apt description. Your mattress full of hundos is detrimental to the economy and you are being fined for maintaining it. Savings accounts are not an example of unproductive capital because they collateralize loans. That's why they're not subject to the inflationary haircut. They're not particularly productive hence the low return, which may be below inflation. However, that's an ROI below benchmark, not inflation. i.e. savings accounts are just a bad investment. Bad investments will exist in any market conditions. Personally I maintain a small cash buffer in a savings account and I pay the (small) delta between inflation and interest rate as a fee for liquidity.
- bingbong70 5y ago
  I think you misunderstood my reason for stating this... >All retail banks offer savings accounts specifically for this purpose. Banks scam poor/middle-income people into paying the inflation tax by promoting these accounts and so does the government. CPI is not the actual inflation rate and savings accounts pay nowhere near CPI. The money you have in your savings account is rotting and I'm not sure you realize it. >That's how currency works: it retains value only for as long as necessary. Poor people forced to live in cash are supposed to take a ~50% haircut in purchasing power every 5-10 years? I think if they understood the rate of devaluation they would not think it was as 'long as necessary'.

arcticbull 5y ago

It's a "tax" on un-invested capital, sure, in the same way a fine is a "tax" on undesirable behavior. I think tax is the wrong word because a tax implies a kind of tithe on top of desirable behavior. A fine implies that you are being penalized for undesirable behavior. I think the latter is a more apt description. Your mattress full of hundos is detrimental to the economy and you are being fined for maintaining it. Savings accounts are not an example of unproductive capital because they collateralize loans. That's why they're not subject to the inflationary haircut. They're not particularly productive hence the low return, which may be below inflation. However, that's an ROI below benchmark, not inflation. i.e. savings accounts are just a bad investment. Bad investments will exist in any market conditions. Personally I maintain a small cash buffer in a savings account and I pay the (small) delta between inflation and interest rate as a fee for liquidity.

bingbong70 5y ago
I think you misunderstood my reason for stating this... >All retail banks offer savings accounts specifically for this purpose. Banks scam poor/middle-income people into paying the inflation tax by promoting these accounts and so does the government. CPI is not the actual inflation rate and savings accounts pay nowhere near CPI. The money you have in your savings account is rotting and I'm not sure you realize it. >That's how currency works: it retains value only for as long as necessary. Poor people forced to live in cash are supposed to take a ~50% haircut in purchasing power every 5-10 years? I think if they understood the rate of devaluation they would not think it was as 'long as necessary'.