4 ms·

How does inflation suck money from the poor? That is, the ones who are most likely to have loans that will be reduced by that very same inflationary policy.

bobthepanda 5y ago
To a degree you have to have something to put up to have a loan in the first place. The finances of some freshly minted doctor loaded with medical school debt look a lot different than an unbanked poor person who's never qualified for credit.
- dragonwriter 5y ago
  > To a degree you have to have something to put up to have a loan in the first place. Dollar denominated debt doesn’t all originate with getting credit-check-qualified approval for a loan.
dnautics 5y ago
> How does inflation suck money from the poor? That is, the ones who are most likely to have loans... why the hell is this still a belief? The indebted poor have revolving credit at best (think 10%-ish APR) or short-term credit (payday loans: 15%+ APR). Inflation does not help those situations. The wealthy are benefitting from low-interest rate loans (margin accounts, leveraged trading, options) that are enabled by the existence of inflation, and by the mechanism, which is providing a discount window to banks (so they ride on nominal gains and are insulated from real devaluation). Consider someone who is spending 95% of their income on day to day expenses, and we have a 1% increase in prices. Now you are spending 96% of your income on day to day expenses, which is a 20% decrease in margin of safety. It's even worse if you start at 99%. If you are spending 20% of your income on day to day expenses and have a 1% increase in prices, your margin of safety loss is < 2%. "But wages catch up" you say. No they don't. Otherwise inflation as a policy doesn't work. https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... "in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts." Inflation is a stealth wage cut, a matter of policy for cheating the labor class. Don't get me wrong, it's well intentioned - it's to prop up the low unemployment metric, but Goodheart's law applies. Finally, inflation forces the middle class to invest instead of save, to stay afloat and build up a retirement nest egg. Investments typically must go through approved channels, e.g. "the stock market" which disproportionately favors the already wealthy, e.g. CEOs, investment managers, hedge funds. Thus it is a siphon that steals wealth from the poor and middle class and gives it to the wealthy.
- mullingitover 5y ago
  > Finally, inflation forces the middle class to invest instead of save, to stay afloat and build up a retirement nest egg. Investments typically must go through approved channels, e.g. "the stock market" which disproportionately favors the already wealthy, e.g. CEOs, investment managers, hedge funds. If only there was some common investment vehicle, a 'shelter,' if you will, that could shelter you from inflation while simultaneously sheltering you from the elements?
- dragonwriter 5y ago
  > "But wages catch up" you say. No they don't. They did until a series of fiscal policy (tax and spending) changes in the 1970s and 1980s (including the massive Reagan tax burden shift onto workers) put the kibosh on it. Since then, not so much, but that’s not a monetary policy issue, insofar as those two things have been artificially segmented. > Inflation is a stealth wage cut, a matter of policy for cheating the labor class. You are misunderstanding the Krugman quote. The value he is citing is that as there are demand shifts in the economy, inflation allows small short-term real wage cuts in segments of the economy seeing decreased demand and therefore profitability without reducing nominal wages (whumich tend to be sticky), reducing resort to job cuts as a response, providing a buffer between short-term fluctuations and unemployment. Krugman is not saying that inflation enables long-term, general real wage cuts to be more easily implemented or that it would be good for it to do so. > Finally, inflation forces the middle class to invest instead of save The middle and upper class are, by definition the clases with substantial dependence on the returns from productive capital. Inflation doesn't force the moddle class to invest in capital, substantial investment in capital while still having a dependency on your labor is what defines being middle class. You can choose not to invest in capital, whether by stuffing money in a mattress or blowing it on hookers and blackjack, but if you do that you aren’t middle class. > Thus it is a siphon that steals wealth from the poor and middle class and gives it to the wealthy. No, the siphon that does that is the series of tax burden shifts adopted over the last several decades with the express design of rewarding/encouraging the wealthy (often euphemized as “job creators”).
  - dnautics 5y ago
billytetrud 5y ago
Its called Seigniorage. The people and businesses closest to the money creation gain more from the creation of the money. That's because when new money is first used, prices haven't accounted for it yet. It takes a lot of time for that to happen. So by the time that money has trickled down to the masses, prices have inflated to account. Not only that, but that money is very often used to fuel government debt, which only leads to paying more money later down the line. Debt rises faster than inflation dilutes the money supply, so its simply not true that we can simply print enough money to devalue our debt. The more money we print, the more in debt we'll collectively be.
grey-area 5y ago
The rich have large leveraged loans, mortgages, and lots of assets - ideally situated to benefit from inflation and are not impacted by the price of food or rents. In contrast the poor typically have small loans, rents and rely on wage inflation, which usually trails price inflation by some way.

bobthepanda 5y ago

To a degree you have to have something to put up to have a loan in the first place. The finances of some freshly minted doctor loaded with medical school debt look a lot different than an unbanked poor person who's never qualified for credit.

dragonwriter 5y ago
> To a degree you have to have something to put up to have a loan in the first place. Dollar denominated debt doesn’t all originate with getting credit-check-qualified approval for a loan.

dnautics 5y ago

> How does inflation suck money from the poor? That is, the ones who are most likely to have loans... why the hell is this still a belief? The indebted poor have revolving credit at best (think 10%-ish APR) or short-term credit (payday loans: 15%+ APR). Inflation does not help those situations. The wealthy are benefitting from low-interest rate loans (margin accounts, leveraged trading, options) that are enabled by the existence of inflation, and by the mechanism, which is providing a discount window to banks (so they ride on nominal gains and are insulated from real devaluation). Consider someone who is spending 95% of their income on day to day expenses, and we have a 1% increase in prices. Now you are spending 96% of your income on day to day expenses, which is a 20% decrease in margin of safety. It's even worse if you start at 99%. If you are spending 20% of your income on day to day expenses and have a 1% increase in prices, your margin of safety loss is < 2%. "But wages catch up" you say. No they don't. Otherwise inflation as a policy doesn't work. https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... "in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts." Inflation is a stealth wage cut, a matter of policy for cheating the labor class. Don't get me wrong, it's well intentioned - it's to prop up the low unemployment metric, but Goodheart's law applies. Finally, inflation forces the middle class to invest instead of save, to stay afloat and build up a retirement nest egg. Investments typically must go through approved channels, e.g. "the stock market" which disproportionately favors the already wealthy, e.g. CEOs, investment managers, hedge funds. Thus it is a siphon that steals wealth from the poor and middle class and gives it to the wealthy.

mullingitover 5y ago
> Finally, inflation forces the middle class to invest instead of save, to stay afloat and build up a retirement nest egg. Investments typically must go through approved channels, e.g. "the stock market" which disproportionately favors the already wealthy, e.g. CEOs, investment managers, hedge funds. If only there was some common investment vehicle, a 'shelter,' if you will, that could shelter you from inflation while simultaneously sheltering you from the elements?
dragonwriter 5y ago
> "But wages catch up" you say. No they don't. They did until a series of fiscal policy (tax and spending) changes in the 1970s and 1980s (including the massive Reagan tax burden shift onto workers) put the kibosh on it. Since then, not so much, but that’s not a monetary policy issue, insofar as those two things have been artificially segmented. > Inflation is a stealth wage cut, a matter of policy for cheating the labor class. You are misunderstanding the Krugman quote. The value he is citing is that as there are demand shifts in the economy, inflation allows small short-term real wage cuts in segments of the economy seeing decreased demand and therefore profitability without reducing nominal wages (whumich tend to be sticky), reducing resort to job cuts as a response, providing a buffer between short-term fluctuations and unemployment. Krugman is not saying that inflation enables long-term, general real wage cuts to be more easily implemented or that it would be good for it to do so. > Finally, inflation forces the middle class to invest instead of save The middle and upper class are, by definition the clases with substantial dependence on the returns from productive capital. Inflation doesn't force the moddle class to invest in capital, substantial investment in capital while still having a dependency on your labor is what defines being middle class. You can choose not to invest in capital, whether by stuffing money in a mattress or blowing it on hookers and blackjack, but if you do that you aren’t middle class. > Thus it is a siphon that steals wealth from the poor and middle class and gives it to the wealthy. No, the siphon that does that is the series of tax burden shifts adopted over the last several decades with the express design of rewarding/encouraging the wealthy (often euphemized as “job creators”).
- dnautics 5y ago

billytetrud 5y ago

Its called Seigniorage. The people and businesses closest to the money creation gain more from the creation of the money. That's because when new money is first used, prices haven't accounted for it yet. It takes a lot of time for that to happen. So by the time that money has trickled down to the masses, prices have inflated to account. Not only that, but that money is very often used to fuel government debt, which only leads to paying more money later down the line. Debt rises faster than inflation dilutes the money supply, so its simply not true that we can simply print enough money to devalue our debt. The more money we print, the more in debt we'll collectively be.

grey-area 5y ago

The rich have large leveraged loans, mortgages, and lots of assets - ideally situated to benefit from inflation and are not impacted by the price of food or rents. In contrast the poor typically have small loans, rents and rely on wage inflation, which usually trails price inflation by some way.