4 ms·

Is this really the case? Inflation favors debtors over creditors, the upper class tends to be the latter not the former. While it is the case that the value of

Is this really the case? Inflation favors debtors over creditors, the upper class tends to be the latter not the former. While it is the case that the value of savings goes down, the lower class are much less likely to save.

vkou 5y ago
It's not the case, but people keep wringing their hands about how inflation robs the poor of the ~$500 they have in their savings accounts, while ignoring how much it helps the middle-class mortgage owner who is in fixed-rate debt for a million dollars. They get away with it because they don't make the distinction between price inflation and asset inflation. The cost of bread doubling is a huge problem for the poor, but means little to everyone else. The cost of assets doubling doesn't matter to the poor, because they have never, and will never save enough money to buy assets. The cost of assets doubling matters greatly against a yuppie who is trying to buy a home. The cost of assets doubling matters greatly in favor of someone who bought a home last week. Inflation sucks for you if you earn minimum wage, because half the country thinks that raising the minimum wage to keep up with inflation means will bring about the apocalypse. Inflation doesn't matter much to you if you're in a high-demand industry, with wages rising to match it. Inflation sucks for you if you're not working, but doesn't matter to you if you are, and there's a labour shortage, which increases your wage bargaining power.
- imtringued 5y ago
  Deflation and inflation are bad because they make people speculate on the currency in either way. Inflation discourages paying off debt. Deflation encourages hoarding. Both of them are harmful because they create a self reinforcing feedback loop. A negative interest rate forces money to circulate and it encourages you to pay off debts. Thereby it eliminates both inflation and deflation.
- VirusNewbie 5y ago
  Let's use an example that might look familiar. If inflation robs the poor person of the $500 and helps the middle class person with a mortgage.... all other things being equal, we transferred wealth from the poor person to the middle class person. yay, with me so far? By the same account, if the middle class person is helped a little bit by inflation, (but also has some cash) the rich person who is leveraged many times over into 10 properties, and has most of their wealth in equities (which themselves are leveraged because of corporate debt) is going to be even better off after the increase in money supply. Their share of the pie grew and the middle class persons maybe grew, but not relative to the rich person. Therefore, that is wealth transfer. The majority of US equities is held by the upper class and corporate debt dwarfs consumer debt (including mortgages).
  - Spooky23 5y ago
    All things are not equal. I know someone who was the CEO of a small hospital network. When he retired, his compensation was greater than the sum of salary for the entire company. The company paid for his Tesla lease, but orderlies making $12/hr had a uniform deposit deducted from their first few checks.
    - lotsofpulp 5y ago
      I would need a source to believe this. The hospital would have had to not have any doctors on staff to come close.
      - auntienomen 5y ago
        That can happen. Doctors are employed by physician practices which work as contractors at the hospital.
  - Manuel_D 5y ago
    But you're missing the bigger picture: the rich who issues mortgages (or more likely, has stake in a real estate company) is having their wealth transferred to the lender. Most wealthy people loan more than they owe. If you owe more than to loan out then by definitely you're not wealthy, your net worth is negative. Similarly, a poor person who owes $20,000 on an auto loan, whose car is now worth $25,000 just saw a significant gain. Inflation helps people who owe more than they lend out (most poor and middle class people). People who lend out more than they owe, directly or indirectly through stake in companies that do lending, are the ones experiencing less profit because of inflation.
    - VirusNewbie 5y ago
      You're right that the banking system is a little more complicated than I made it out to be, but let's ignore that for now. You agree that the majority of the fortune 50 is holds more debt than credit, right? We don't have to speculate about how much debt rich people have, you can look at what % of equities is owned by the upper class and you can go compare consumer debt to corporate debt. Now as to the banking system, there's a little bit of a feedback loop here because they're really the ones creating money, so no they're not really a net creditor either. I owe my bank 700k on my house, but that's new money being created in some respects.
- Spooky23 5y ago
  Something like 70% of the population has no savings of any kind. You know that the arguments about poor grandma with $500 life savings are bullshit, because everyone making them would happily let grandma die for a buck. The only reason resource extraction types care about inflation is that most use debt to avoid taxation, and increase interest rates hurt their return on assets. Because the perversion of the US Senate has happened, we care more about corn companies, oil drillers, etc than anyone else.
  - imtringued 5y ago
    That's not really correct. What's correct through is that the bottom 80% don't receive enough interest to break even on interest expenses. I.e. they pay more interest than they receive back. This is the primary driver of inequality. And this is true for everything. For housing, for stocks, for lent out money.
tantaman 5y ago
I'd imagine that wealthy individuals are highly leveraged. In other words, rather than selling assets to buy things they take loans against those assets to buy things. This (1) prevents ever having to pay tax (2) gives them benefits from inflation and (3) gives them benefits from low interest rates as their assets appreciate faster than their interest rate consumes money
- Manuel_D 5y ago
  Most sources I read indicate the opposite: poor and middle class people are much less likely to be debtors rather than creditors. They're more likely to have an auto loan rather than own a car outright. Likewise, they're more likely to have a mortgage on their home rather than own it. The wealthy, by comparison, are more likely to invest their money, issuing loans to other people.
VirusNewbie 5y ago
Yes, the majority of US equities is held by the upper class and corporate debt dwarfs consumer debt (including mortgages).
LeFantome 5y ago
Nobody owes more money than the rich. This is true of countries as well. “Wealth” as most people think of it comes from power over money more than from the absolute value of net worth. I had a lot of credit card debt in University. I was the richest person my friends knew. That money gave me access to people and opportunities I would not have had otherwise. Today, I owe a million dollars ( mostly mortgage ) but am considered quite well off I think. Don’t get me wrong, I am far from wealthy but I am probably the “richest” person in my family. In University I used to joke that if you gave $50,000 to a penniless man with nothing, he would have $50,000 ( be doing pretty well ) whereas if you gave it to me I would be broke and it would not change my life at all. Today, I guess it would be several hundred thousand instead but otherwise still totally true. If your average Latin American country was able to borrow as much per person as the US owes, they could build roads and factories and hospitals and universities and chip foundries and be instantly wealthy. The only problem is who is going to lend it to them? Wealth is not what we think it is.
- imtringued 5y ago
  >Nobody owes more money than the rich. This is true of countries as well. This is completely incorrect. The rich are net lenders. They are also net interest recipients. The companies they own are also net lenders.
  - VirusNewbie 5y ago
    Net lender doesn’t matter if there is no cap on the upside. The person you are replying to has it right.
- Manuel_D 5y ago
  I think you're mistaking wealth with purchase of luxury goods. If someone has no money, and borrows to buy a fancy set of clothes they might be perceived as wealthy by onlookers but they still have no money. Worse, even, as the interest on that loan will make them even poorer to the point of having a negative net worth. If you owe more than you own, you are not wealthy as you have negative net worth. Inflation someone in your situation precisely because they aren't actually wealthy: they owe more than they own. This is exactly my point: someone who borrowed money for, say, university or to buy a house or a car is helped by inflation. By comparison wealthier people who are more likely to have bought those assets outright, are not. And the wealthiest people who are - directly or indirectly - the ones lending out money to other people see their wealth transferred to the first group.

vkou 5y ago

It's not the case, but people keep wringing their hands about how inflation robs the poor of the ~$500 they have in their savings accounts, while ignoring how much it helps the middle-class mortgage owner who is in fixed-rate debt for a million dollars. They get away with it because they don't make the distinction between price inflation and asset inflation. The cost of bread doubling is a huge problem for the poor, but means little to everyone else. The cost of assets doubling doesn't matter to the poor, because they have never, and will never save enough money to buy assets. The cost of assets doubling matters greatly against a yuppie who is trying to buy a home. The cost of assets doubling matters greatly in favor of someone who bought a home last week. Inflation sucks for you if you earn minimum wage, because half the country thinks that raising the minimum wage to keep up with inflation means will bring about the apocalypse. Inflation doesn't matter much to you if you're in a high-demand industry, with wages rising to match it. Inflation sucks for you if you're not working, but doesn't matter to you if you are, and there's a labour shortage, which increases your wage bargaining power.

imtringued 5y ago
Deflation and inflation are bad because they make people speculate on the currency in either way. Inflation discourages paying off debt. Deflation encourages hoarding. Both of them are harmful because they create a self reinforcing feedback loop. A negative interest rate forces money to circulate and it encourages you to pay off debts. Thereby it eliminates both inflation and deflation.
VirusNewbie 5y ago
Let's use an example that might look familiar. If inflation robs the poor person of the $500 and helps the middle class person with a mortgage.... all other things being equal, we transferred wealth from the poor person to the middle class person. yay, with me so far? By the same account, if the middle class person is helped a little bit by inflation, (but also has some cash) the rich person who is leveraged many times over into 10 properties, and has most of their wealth in equities (which themselves are leveraged because of corporate debt) is going to be even better off after the increase in money supply. Their share of the pie grew and the middle class persons maybe grew, but not relative to the rich person. Therefore, that is wealth transfer. The majority of US equities is held by the upper class and corporate debt dwarfs consumer debt (including mortgages).
- Spooky23 5y ago
  All things are not equal. I know someone who was the CEO of a small hospital network. When he retired, his compensation was greater than the sum of salary for the entire company. The company paid for his Tesla lease, but orderlies making $12/hr had a uniform deposit deducted from their first few checks.
  - lotsofpulp 5y ago
    I would need a source to believe this. The hospital would have had to not have any doctors on staff to come close.
    - auntienomen 5y ago
      That can happen. Doctors are employed by physician practices which work as contractors at the hospital.
- Manuel_D 5y ago
  But you're missing the bigger picture: the rich who issues mortgages (or more likely, has stake in a real estate company) is having their wealth transferred to the lender. Most wealthy people loan more than they owe. If you owe more than to loan out then by definitely you're not wealthy, your net worth is negative. Similarly, a poor person who owes $20,000 on an auto loan, whose car is now worth $25,000 just saw a significant gain. Inflation helps people who owe more than they lend out (most poor and middle class people). People who lend out more than they owe, directly or indirectly through stake in companies that do lending, are the ones experiencing less profit because of inflation.
  - VirusNewbie 5y ago
    You're right that the banking system is a little more complicated than I made it out to be, but let's ignore that for now. You agree that the majority of the fortune 50 is holds more debt than credit, right? We don't have to speculate about how much debt rich people have, you can look at what % of equities is owned by the upper class and you can go compare consumer debt to corporate debt. Now as to the banking system, there's a little bit of a feedback loop here because they're really the ones creating money, so no they're not really a net creditor either. I owe my bank 700k on my house, but that's new money being created in some respects.
Spooky23 5y ago
Something like 70% of the population has no savings of any kind. You know that the arguments about poor grandma with $500 life savings are bullshit, because everyone making them would happily let grandma die for a buck. The only reason resource extraction types care about inflation is that most use debt to avoid taxation, and increase interest rates hurt their return on assets. Because the perversion of the US Senate has happened, we care more about corn companies, oil drillers, etc than anyone else.
- imtringued 5y ago
  That's not really correct. What's correct through is that the bottom 80% don't receive enough interest to break even on interest expenses. I.e. they pay more interest than they receive back. This is the primary driver of inequality. And this is true for everything. For housing, for stocks, for lent out money.

tantaman 5y ago

I'd imagine that wealthy individuals are highly leveraged. In other words, rather than selling assets to buy things they take loans against those assets to buy things. This (1) prevents ever having to pay tax (2) gives them benefits from inflation and (3) gives them benefits from low interest rates as their assets appreciate faster than their interest rate consumes money

Manuel_D 5y ago
Most sources I read indicate the opposite: poor and middle class people are much less likely to be debtors rather than creditors. They're more likely to have an auto loan rather than own a car outright. Likewise, they're more likely to have a mortgage on their home rather than own it. The wealthy, by comparison, are more likely to invest their money, issuing loans to other people.

VirusNewbie 5y ago

Yes, the majority of US equities is held by the upper class and corporate debt dwarfs consumer debt (including mortgages).

LeFantome 5y ago

Nobody owes more money than the rich. This is true of countries as well. “Wealth” as most people think of it comes from power over money more than from the absolute value of net worth. I had a lot of credit card debt in University. I was the richest person my friends knew. That money gave me access to people and opportunities I would not have had otherwise. Today, I owe a million dollars ( mostly mortgage ) but am considered quite well off I think. Don’t get me wrong, I am far from wealthy but I am probably the “richest” person in my family. In University I used to joke that if you gave $50,000 to a penniless man with nothing, he would have $50,000 ( be doing pretty well ) whereas if you gave it to me I would be broke and it would not change my life at all. Today, I guess it would be several hundred thousand instead but otherwise still totally true. If your average Latin American country was able to borrow as much per person as the US owes, they could build roads and factories and hospitals and universities and chip foundries and be instantly wealthy. The only problem is who is going to lend it to them? Wealth is not what we think it is.

imtringued 5y ago
>Nobody owes more money than the rich. This is true of countries as well. This is completely incorrect. The rich are net lenders. They are also net interest recipients. The companies they own are also net lenders.
- VirusNewbie 5y ago
  Net lender doesn’t matter if there is no cap on the upside. The person you are replying to has it right.
Manuel_D 5y ago
I think you're mistaking wealth with purchase of luxury goods. If someone has no money, and borrows to buy a fancy set of clothes they might be perceived as wealthy by onlookers but they still have no money. Worse, even, as the interest on that loan will make them even poorer to the point of having a negative net worth. If you owe more than you own, you are not wealthy as you have negative net worth. Inflation someone in your situation precisely because they aren't actually wealthy: they owe more than they own. This is exactly my point: someone who borrowed money for, say, university or to buy a house or a car is helped by inflation. By comparison wealthier people who are more likely to have bought those assets outright, are not. And the wealthiest people who are - directly or indirectly - the ones lending out money to other people see their wealth transferred to the first group.