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There's a mistake in that comment. The opposite is true. Central banks primary driver is to stop CPI prices from decreasing, which happens naturally because eco
by Geee 5y ago
There's a mistake in that comment. The opposite is true. Central banks primary driver is to stop CPI prices from decreasing, which happens naturally because economic productivity increases with technological progress, making it easier and cheaper to produce goods and services.
Money is created to revert this development so that CPI prices increase at the rate of 2% per year. Naturally, life would get easier because of technology, but instead life is made harder and harder to incentivize economic growth and environmental destruction, and keeping people in jobs that are not necessary or keeping work days longer than necessary (hamster-wheel economy).
It's important to note that inflation is relative to CPI prices, because CPI prices will naturally decrease but prices of scarce assets like real estate will relatively increase because they're more limited by space, time and energy. On the other hand, digital goods and services are highly deflationary, i.e. digital consumption is getting cheaper. So, there's digital deflation, 2% CPI inflation, 10% (or more) asset inflation.
- dnautics 5y agoTrue. I would 100% agree that the fed's priorities, (north star: maintain 'stability' for some definition of stability), in order of importance are: KPI 1. Keep prices from decreasing (screw the poor, put the middle class on a hamster wheel so they don't get too powerful) KPI 2. Keep employment up (if you're working you're too busy to revolt) KPI 3. Keep prices from increasing too fast (or else people will have nothing to lose and will riot)
- solveit 5y agoI can't tell if you're exaggerating for effect or if you really believe the parenthetical comments, but the people working at the fed are fairly regular people and don't think that way.
- dnautics 5y agoThe people working at the fed are not regular people. I know at least two. Call me when someone at the fed has driven for Uber or Lyft for two years to understand markets from a "regular person" perspective, or moonlights a second job as a server at a restaurant to understand how the disparity in tax treatment for tipped jobs affects economic choices of the exhausted wage-earner. The point of the parentheticals is not to imply this is what those a the fed believe, but to highlight how the single north star "optimize for social stability" has encoded within itself dangerous biases. Whether or not they believe those things, that is what they are working towards.
- Geee 5y agoKPI 4. Allow wealthy people, institutions and governments to get cheap money without real cost of capital, stealing away all wealth from the common people.
- xapata 5y agoIf inflation goes up as a result of low inflation rates, debtors benefit. Which is why all the bankers are complaining about the possibility.
- Geee 5y agoThat's what I meant. Common people and those with cash reserves are creditors who lose their money. Wealthy debtors buy assets with the cheap loan money, and are guaranteed to get richer without risk. Because of this, all valuable assets are moving to few hands.
- xapata 5y ago"Common" people in the USA don't have cash reserves. They are debtors, on average.
- deleted 5y ago[deleted]
- dnautics 5y agobanks don't care in the fashion that you imply, they're making money off of interest rate spreads, which doesn't change as the value of nominal amounts fluctuate.
- xapata 5y agoIf they didn't anticipate inflation correctly, their profits on past loans that are still active will be lower.
- notahacker 5y agoEconomic productivity increases, but so does the amount of units of stuff consumers want, the number of consumers demanding stuff (and the number of retired consumers) and there are also real resource constraints, especially affecting energy prices. The bank's target is symmetric, but inflation was on average much higher in the decades before central banks' target became CPI inflation
- xapata 5y agoSome goods have gotten cheaper as they've had more capital invested in their production processes, but many goods do not. Automobiles are a classic example. Ask your grand parents how much they paid for their first car. Yes, the goods are different, and cars today are better, but it's not clear that we shouldn't still compare the socially equivalent car of today with the one of 50 years ago. A steady, low inflation rate is necessary for a healthy economy. Otherwise you'd get a Bitcoin situation where everyone is busy HODLing and never spending.
- Geee 5y agoSaving is healthy for economy. Inflation is slavery. Inflation moves capital from the productive to the unproductive, from the efficient to the inefficient.
- notahacker 5y agoAlmost the reverse is true. Inflation increases the opportunity cost of choosing not to use one's claim on future resources productively, and incentivises investment in production. Saving is healthy for the economy when the savings are invested in production. It is not healthy for the economy when savings are hoarded for risk-free gains at the expense of investment-starved productive entities.
- Geee 5y agoFalse. People are already storing their wealth in gold, art, collector items, land and real estate without looking for any profits. They're just defending from monetary inflation. These assets resemble hard money in their properties, because they're scarce and can't be created from thin air. You can't stop people from parking their wealth in non-productive hard assets. The problem is that money is created from thin air and it's used to buy these hard assets. It's not used for productive investments. Inflation is stealing and it's not healthy for economy.
- xapata 5y ago