4 ms·

Punishes savers, lower income families

AnthonyMouse 5y ago
To understand why that doesn't make any sense, realize that these are essentially disjoint sets. When there is inflation, wages rise with prices. But people's debts are valued in nominal dollars, so it erodes those debts. Debtors are generally poor. Moreover, savers generally invest their money instead of keeping it as cash in a mattress, and the prices of typical investment securities (e.g. stocks) rise with inflation in nominal dollars. Inflation is primarily bad for lenders, and people trading in securities derivatives that are equivalent to lending.
- paulpauper 5y ago
  It lowers exiting debts if the inflation is sudden and comes as a surprise, but interest on new debt will be adjusted accordingly to take into account rising expected inflation
  - vkou 5y ago
    The overwhelming majority of people are not new debt-holders, but are old debt-holders. Floating rate mortgages are not common in the US. Since most of them are in debt, inflation, as long as their wages are keeping up with it is good for the overwhelming majority of Americans.
    - mostertoaster 5y ago
      This is insane. Inflation is not good for a majority of Americans. It is only ok for the upper class with lots of assets, and at times, in the short term, it benefits the lower class. It is simply a tax on the middle class who are still generally on fixed income and might own a house. I’ve saved let’s say 10 grand. Then the government gives everyone including the person who has saved nothing 5 grand. Now the new appliance I was going to buy costs more than it would because the person with no savings given 5 grand is also going to buy one. So sure the person with no savings can now also buy that appliance, and we can argue the merits of that, but ultimately the person who saved for it is robbed the increase in price, and the rich capitalist who owns the company that sells the appliance makes more money, and his assets go up in value, so he is fine. What we effectively did is tax the saver to give to the person who didn’t save.
      - vkou 5y ago
        The overwhelming majority of Americans do not have a positive balance of savings minus debts. I'm not talking about the lower class, I'm talking about middle-class people who own mortgages. You may have ten grand in your bank account, but you also probably have a mortgage for another four hundred grand. Inflation to the degree that you describe would cause tens to hundreds of thousands of dollars of that debt to evaporate.
        ac29 5y ago
        > You may have ten grand in your bank account, but you also probably have a mortgage for another four hundred grand. Unless you are underwater on your mortgage, you also have an asset worth at least $400k. "Savings minus debts" is not a (good) measure of net worth.
        vkou 5y ago
        Savings minus debts is an excellent measure of how much cash you have, which is what is destroyed by inflation. When your net cash balance is negative, you thereby benefit when the value of cash drops. If the home is worth 600k, and the dollar loses a third of it's value, the home is now worth ~900k in new dollars, but 600k in old dollars. Your 400k mortgage is still 400k, though - which makes it cost you ~266k in old dollars.
        mostertoaster 5y ago
        I don’t think you understand value. While the amount I owe on my mortgage is relatively less, the price I had to pay for those low interest rates was way higher than it would’ve been. The true value of something doesn’t magically go up because of inflation. Ultimately inflation still find people. Maybe that is worth it, to avoid deflation, but everything is ultimately in the exchange. If my house was worth 1 million bananas, printing more US dollars doesn’t make it worth more than 1 million bananas. Next thing you’re going to tell me is that wars are good for economies, because they cause an increase in spending.
  - AnthonyMouse 5y ago
    > It lowers exiting debts if the inflation is sudden and comes as a surprise, but interest on new debt will be adjusted accordingly to take into account rising expected inflation Not necessarily. Interest rates tend to be higher during times of inflation because if inflation is expected then more people are eager to borrow today with the expectation that they'll be able to pay back the loan in the future with devalued currency, and then the banks hit their reserve ratio and are unable to lend more money. Then banks can charge higher interest rates for the now-scarce supply of loans. But notice the current reserve requirements. Consequently loan interest rates are still very low.
- teclordphrack2 5y ago
  You are incorrect. People of low incomes can save a modest amount but we choose to keep it liquid because we can come into dire straights at any time. I can't invest my money b/c I may have to buy a used car, fix a roof leak, and/or cover medical expenses.
- srean 5y ago
  > When there is inflation, wages rise with prices. This is a key assumption and as far as I can tell wages have not kept up with inflation, at least not consistently.

To understand why that doesn't make any sense, realize that these are essentially disjoint sets. When there is inflation, wages rise with prices. But people's debts are valued in nominal dollars, so it erodes those debts. Debtors are generally poor. Moreover, savers generally invest their money instead of keeping it as cash in a mattress, and the prices of typical investment securities (e.g. stocks) rise with inflation in nominal dollars. Inflation is primarily bad for lenders, and people trading in securities derivatives that are equivalent to lending.

paulpauper 5y ago
It lowers exiting debts if the inflation is sudden and comes as a surprise, but interest on new debt will be adjusted accordingly to take into account rising expected inflation
- vkou 5y ago
  The overwhelming majority of people are not new debt-holders, but are old debt-holders. Floating rate mortgages are not common in the US. Since most of them are in debt, inflation, as long as their wages are keeping up with it is good for the overwhelming majority of Americans.
  - mostertoaster 5y ago
    This is insane. Inflation is not good for a majority of Americans. It is only ok for the upper class with lots of assets, and at times, in the short term, it benefits the lower class. It is simply a tax on the middle class who are still generally on fixed income and might own a house. I’ve saved let’s say 10 grand. Then the government gives everyone including the person who has saved nothing 5 grand. Now the new appliance I was going to buy costs more than it would because the person with no savings given 5 grand is also going to buy one. So sure the person with no savings can now also buy that appliance, and we can argue the merits of that, but ultimately the person who saved for it is robbed the increase in price, and the rich capitalist who owns the company that sells the appliance makes more money, and his assets go up in value, so he is fine. What we effectively did is tax the saver to give to the person who didn’t save.
    - vkou 5y ago
      The overwhelming majority of Americans do not have a positive balance of savings minus debts. I'm not talking about the lower class, I'm talking about middle-class people who own mortgages. You may have ten grand in your bank account, but you also probably have a mortgage for another four hundred grand. Inflation to the degree that you describe would cause tens to hundreds of thousands of dollars of that debt to evaporate.
      - ac29 5y ago
        > You may have ten grand in your bank account, but you also probably have a mortgage for another four hundred grand. Unless you are underwater on your mortgage, you also have an asset worth at least $400k. "Savings minus debts" is not a (good) measure of net worth.
        vkou 5y ago
        Savings minus debts is an excellent measure of how much cash you have, which is what is destroyed by inflation. When your net cash balance is negative, you thereby benefit when the value of cash drops. If the home is worth 600k, and the dollar loses a third of it's value, the home is now worth ~900k in new dollars, but 600k in old dollars. Your 400k mortgage is still 400k, though - which makes it cost you ~266k in old dollars.
        mostertoaster 5y ago
        I don’t think you understand value. While the amount I owe on my mortgage is relatively less, the price I had to pay for those low interest rates was way higher than it would’ve been. The true value of something doesn’t magically go up because of inflation. Ultimately inflation still find people. Maybe that is worth it, to avoid deflation, but everything is ultimately in the exchange. If my house was worth 1 million bananas, printing more US dollars doesn’t make it worth more than 1 million bananas. Next thing you’re going to tell me is that wars are good for economies, because they cause an increase in spending.
- AnthonyMouse 5y ago
  > It lowers exiting debts if the inflation is sudden and comes as a surprise, but interest on new debt will be adjusted accordingly to take into account rising expected inflation Not necessarily. Interest rates tend to be higher during times of inflation because if inflation is expected then more people are eager to borrow today with the expectation that they'll be able to pay back the loan in the future with devalued currency, and then the banks hit their reserve ratio and are unable to lend more money. Then banks can charge higher interest rates for the now-scarce supply of loans. But notice the current reserve requirements. Consequently loan interest rates are still very low.
teclordphrack2 5y ago
You are incorrect. People of low incomes can save a modest amount but we choose to keep it liquid because we can come into dire straights at any time. I can't invest my money b/c I may have to buy a used car, fix a roof leak, and/or cover medical expenses.
srean 5y ago
> When there is inflation, wages rise with prices. This is a key assumption and as far as I can tell wages have not kept up with inflation, at least not consistently.