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>> -Causes borrowers to get ahead of savers and lenders. > Savers who don't stupidly hold their savings in cash are unaffected, since securities prices increas

>> -Causes borrowers to get ahead of savers and lenders. > Savers who don't stupidly hold their savings in cash are unaffected, since securities prices increase with inflation. Savers save money in their savings account or in other accounts. Investors both save and buy appreciating assets. Savors hold savings, investors hold appreciating (or sometimes depreciating) assets. >> -Allows governments to spend more than drunken sailors. >This is generally the cause rather than the consequence. They’re both correct. The Cantillon Effect, not having to raise taxes from a new bill, and being able to inflate the debt away are all seductive to those with the means to use it. > This is caused by low interest rates more than inflation, though they're somewhat related. The basic problem is that if money is cheap to borrow, people borrow it and bid up asset prices, and then people who don't already have assets (e.g. a home) are forced to buy high. Employee wages at the same company typically don’t rise to meet inflation. In the few companies that do, the employees still move higher up the income tax brackets. >> -Causes people to pay taxes on capital gains even when their purchasing power hasn’t risen. >This one is actually true. We could easily fix it by calculating capital gains as adjusted for inflation (and make up the revenue by using the ordinary income rate instead of the capital gains rate). True.

AnthonyMouse 5y ago
> Savers save money in their savings account or in other accounts. Investors both save and buy appreciating assets. Savors hold savings, investors hold appreciating (or sometimes depreciating) assets. This is just using a narrow definition of "saving" that excludes investing. Moreover, if your "savings" is a hundred dollars, inflation on the hundred dollars is the least of your worries, and if your "savings" is a hundred thousand dollars and you're a "saver" and not an "investor" then the consequences are of your own choosing. > They’re both correct. The Cantillon Effect, not having to raise taxes from a new bill, and being able to inflate the debt away are all seductive to those with the means to use it. Those are all still the causes. If the government prints money and spends it then they don't have to collect the money as taxes, but that causes inflation, it doesn't result from it. Inflation can also devalue existing government debt, but that's counterbalanced for new spending by inflation resulting in higher bond rates because you have to compensate investors for holding dollar-denominated government bonds during a period of high inflation. Unless you have the central bank buying the bonds, which is equivalent to printing the money and we're back to things that cause inflation. > Employee wages at the same company typically don’t rise to meet inflation. Employers who don't give their employees cost of living adjustments would lose them to another company, and then have to pay the higher wages to replace them and the turnover cost of finding a new employee. That is more expensive than simply increasing wages for existing employees.
- brutus1213 5y ago
  Stocks can get wiped out. It has happened before, and it will happen again. I remember when I was a youngin ... Nortel seemed like a sure thing.
  - AnthonyMouse 5y ago
    That's why diversification is a thing. The people who invested 2% of their money in Nortel and the rest in 49 other random major companies are doing a lot better than the people who held it all in cash.
    - srean 5y ago
      Diversification is not going to help when the entire market crashes and that seems to happen frequently enough.
      - javagram 5y ago
        Holding a diversified U.S. stock portfolio would have “helped” in every major market crash since 1929. (Perhaps at some point US stocks will end their 100 year run of success though.) This is easily demonstrated by visiting https://www.portfoliovisualizer.com/ https://www.portfoliovisualizer.com/ and observing that an investment in US stocks has always grown in value over sufficient time.
        srean 5y ago
        Aren't market crashes defined as events where the entire market crashes. In such cases even the index funds would have lost value. Didn't the crash of 2008 affect almost all stocks (and perhaps even bonds) ? Not everyone has the forward runway of 20~25 years. There are periods of 20 years that gave little to no return in the stock market [in other words a loss]. "Sufficient time" might be long enough that I am on my death bed by that time. The opportunity cost of waiting in the hopes that the prices will some day pickup can be substantial.
javagram 5y ago
> In the few companies that do, the employees still move higher up the income tax brackets. U.S. Tax brackets are adjusted upward every year to account for inflation.

AnthonyMouse 5y ago

> Savers save money in their savings account or in other accounts. Investors both save and buy appreciating assets. Savors hold savings, investors hold appreciating (or sometimes depreciating) assets. This is just using a narrow definition of "saving" that excludes investing. Moreover, if your "savings" is a hundred dollars, inflation on the hundred dollars is the least of your worries, and if your "savings" is a hundred thousand dollars and you're a "saver" and not an "investor" then the consequences are of your own choosing. > They’re both correct. The Cantillon Effect, not having to raise taxes from a new bill, and being able to inflate the debt away are all seductive to those with the means to use it. Those are all still the causes. If the government prints money and spends it then they don't have to collect the money as taxes, but that causes inflation, it doesn't result from it. Inflation can also devalue existing government debt, but that's counterbalanced for new spending by inflation resulting in higher bond rates because you have to compensate investors for holding dollar-denominated government bonds during a period of high inflation. Unless you have the central bank buying the bonds, which is equivalent to printing the money and we're back to things that cause inflation. > Employee wages at the same company typically don’t rise to meet inflation. Employers who don't give their employees cost of living adjustments would lose them to another company, and then have to pay the higher wages to replace them and the turnover cost of finding a new employee. That is more expensive than simply increasing wages for existing employees.

brutus1213 5y ago
Stocks can get wiped out. It has happened before, and it will happen again. I remember when I was a youngin ... Nortel seemed like a sure thing.
- AnthonyMouse 5y ago
  That's why diversification is a thing. The people who invested 2% of their money in Nortel and the rest in 49 other random major companies are doing a lot better than the people who held it all in cash.
  - srean 5y ago
    Diversification is not going to help when the entire market crashes and that seems to happen frequently enough.
    - javagram 5y ago
      Holding a diversified U.S. stock portfolio would have “helped” in every major market crash since 1929. (Perhaps at some point US stocks will end their 100 year run of success though.) This is easily demonstrated by visiting https://www.portfoliovisualizer.com/ https://www.portfoliovisualizer.com/ and observing that an investment in US stocks has always grown in value over sufficient time.
      - srean 5y ago
        Aren't market crashes defined as events where the entire market crashes. In such cases even the index funds would have lost value. Didn't the crash of 2008 affect almost all stocks (and perhaps even bonds) ? Not everyone has the forward runway of 20~25 years. There are periods of 20 years that gave little to no return in the stock market [in other words a loss]. "Sufficient time" might be long enough that I am on my death bed by that time. The opportunity cost of waiting in the hopes that the prices will some day pickup can be substantial.

javagram 5y ago

> In the few companies that do, the employees still move higher up the income tax brackets. U.S. Tax brackets are adjusted upward every year to account for inflation.