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While a competent computer geek, I usually feel like an imbecile when I read financial stuff. But is this simplification true? If a government can be expected

While a competent computer geek, I usually feel like an imbecile when I read financial stuff. But is this simplification true? If a government can be expected to bail out "must not fail" companies, doesn't that basically amount to printing extra money, i.e. diluting the money supply? If the money supply is diluted, that means inflation, which means the indebted hurt less, but those who have positive assets, the savers, hurt more. In the hyperinflation case, everything in the end is reset, everything is "paid off" but the economy also suffers a complete reset. Oversimplification? This of course kills the savings of any "savers" like me, but if, in the picture this article paints, everyone is in debt anyway (to whom?) who loses?

bwestergard 5y ago
It depends somewhat on the productivity of the firm bailed out. If we imagine that this firm contributes nothing to GDP, and bailing it out amounts to handing the principals money to spend on consumer goods, this would be net inflationary. But if the bailout preserves or expands productive capacity for goods for which there is effective demand, my intuition is that there need not be inflation. This is the sort of thing that's very hard to discuss without a formalization of production functions, elasticities of demand, etc.
lee 5y ago
My understanding is that if you are a saver and own assets, hopefully assets that grow with inflation, you actually "benefit". For example, the incredible rise in stock market prices isn't necessarily related to increased wealth generation but is instead a result of inflation. So if you are a saver and have some tangible assets, such as stocks, real estate, or even crypto, then you're "safe". Those who really suffer are those who don't have assets since salaries and wages don't rise as quickly with inflation.
conception 5y ago
Government bailouts are just government spending. It can be via printing money or raising revenue. If you are saving in assets, not cash, inflation won't necessarily hurt you. See everyone's 401K during the pandemic, housing prices, etc. If you have no assets (your cash income is your only asset) or your savings is in cash - the economy will leave you behind with inflation.
ganeshkrishnan 5y ago
>If the money supply is diluted, that means inflation Depends. This is like saying pissing in a lake is going to cause flooding. The appetite for most major currencies is virtually unlimited. Evidenced by QE for the last 20 years in US and in Japan for like 40 years. Also country debt is overblown. most of the time its internal and is just negative of people's savings. Money should technically come back to government. if not its considered as debt but in really its in people's savings.

bwestergard 5y ago

It depends somewhat on the productivity of the firm bailed out. If we imagine that this firm contributes nothing to GDP, and bailing it out amounts to handing the principals money to spend on consumer goods, this would be net inflationary. But if the bailout preserves or expands productive capacity for goods for which there is effective demand, my intuition is that there need not be inflation. This is the sort of thing that's very hard to discuss without a formalization of production functions, elasticities of demand, etc.

lee 5y ago

My understanding is that if you are a saver and own assets, hopefully assets that grow with inflation, you actually "benefit". For example, the incredible rise in stock market prices isn't necessarily related to increased wealth generation but is instead a result of inflation. So if you are a saver and have some tangible assets, such as stocks, real estate, or even crypto, then you're "safe". Those who really suffer are those who don't have assets since salaries and wages don't rise as quickly with inflation.

conception 5y ago

Government bailouts are just government spending. It can be via printing money or raising revenue. If you are saving in assets, not cash, inflation won't necessarily hurt you. See everyone's 401K during the pandemic, housing prices, etc. If you have no assets (your cash income is your only asset) or your savings is in cash - the economy will leave you behind with inflation.

ganeshkrishnan 5y ago

>If the money supply is diluted, that means inflation Depends. This is like saying pissing in a lake is going to cause flooding. The appetite for most major currencies is virtually unlimited. Evidenced by QE for the last 20 years in US and in Japan for like 40 years. Also country debt is overblown. most of the time its internal and is just negative of people's savings. Money should technically come back to government. if not its considered as debt but in really its in people's savings.