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What you’re describing is basically the need for monetary policy. When the fed raises rates to combat inflation, this makes debt more expensive and makes yield

What you’re describing is basically the need for monetary policy. When the fed raises rates to combat inflation, this makes debt more expensive and makes yield expectations higher on investments (by raising the risk-free yield of bonds). > "Low time preference generations produce prosperity, which produces high time preference generations, who bring ruin, which produces low time preference generations." I don’t understand

matheusmoreira 5y ago
> I don’t understand Why save money today when tomorrow it will be worth a fraction of what it's worth today? You're better off spending it on anything. Inflationary currency sucks by design, you're supposed to get rid of it as soon as possible.
jonathan-adly 5y ago
From my limited readings of Austrian economic theory, monetary policy is the thing that causes inflation in the first place. With a fixed money supply, wide-spread inflation is not a thing.
- imtringued 5y ago
  You are assuming a simulated environment without permanently increasing entropy. Gold doesn't really suffer from increasing entropy but humans do. That's the fundamental problem that makes it impossible to maintain a gold standard or a fixed supply currency that does not account for entropy. If you were to account for increasing entropy with a negative interest rate then you could maintain a fixed money supply though I would recommend price level targeting to adjust the money supply to the population and economic growth because of psychological biases. A fixed supply demurrage currency (negative interest) that is deflationary could in principle work just as well as one that does price level targeting however, the need to adjust prices would remain which is undesirable because we suffer from money illusion. So no, monetary policy is not what is causing inflation. Inflation is a backwards way of representing an increase in entropy. By that I mean the exponential x% creeping monetary inflation. A supply shock can obviously cause an arbitrary amount of inflation within an arbitrary time span.
- helen___keller 5y ago
  I’m sure people more educated than I can debate about this all day, I’m just saying that in the system we have as it exists today, the expectation is that the federal reserve will increase interest rates to combat inflation, and in turn this makes debt more expensive and increases the risk free yield rate Edit: and just to be clear where I’m going with this, the market adjusts along these expectations. Why has the housing market been so insanely hot for a year now? In part because money is easy, and everyone believes inflation is coming/here, so getting a 30 year loan on 3% interest is a killer deal. Consequently home values are through the roof. But this counterbalances: you end up with a higher principle and lower interest for the same monthly home payment, and take on the risk that you will be underwater on your mortgage if asset values crash when rates rise.
BirAdam 5y ago
Inflation severely disincentivizes savings and rewards consumption. This affects the behaviors of entire generations of people. If you really want an example, look at the USA post ‘71 (up to this very day) and its ever-increasing rate of consumption.
- helen___keller 5y ago
  Just to make sure I’m understanding, is the suggestion that people who lived through that high inflation period became more inclined to spend and less inclined to save, culturally, to this day? Do you have any links discussing this further?
  - BirAdam 5y ago
    That is precisely what I am saying. Generally, this is my observed understanding by study of both history and of economics. However, there are some academics starting to look at it: https://www.amazon.com/Ethics-Money-Production-Guido-Hulsmann/dp/1610166817/ref=sr_1_1?keywords=The+Ethics+of+Money+Production&qid=1646926592&sr=8-1 https://www.amazon.com/Ethics-Money-Production-Guido-Hulsman...
  - frostwarrior 5y ago
    I don't have links but it does make sense. If you have the money to buy, e.g., an Xbox, saving it will not neccesarily return you the same amount of money to buy an Xbox in the future, because inflation raised the console's price more than the extra money you got in return of your investments. If you buy the console right away, you can be sure that your asset is "One Xbox" in value, no matter the amount of inflation.
    - helen___keller 5y ago
      the assertion, as I understand it, is that if you lived through a period of inflation your generation will be spending more, and not saving as much, for _the rest of life_, meaning even in low inflation periods like the 2010s

matheusmoreira 5y ago

> I don’t understand Why save money today when tomorrow it will be worth a fraction of what it's worth today? You're better off spending it on anything. Inflationary currency sucks by design, you're supposed to get rid of it as soon as possible.

jonathan-adly 5y ago

From my limited readings of Austrian economic theory, monetary policy is the thing that causes inflation in the first place. With a fixed money supply, wide-spread inflation is not a thing.

imtringued 5y ago
You are assuming a simulated environment without permanently increasing entropy. Gold doesn't really suffer from increasing entropy but humans do. That's the fundamental problem that makes it impossible to maintain a gold standard or a fixed supply currency that does not account for entropy. If you were to account for increasing entropy with a negative interest rate then you could maintain a fixed money supply though I would recommend price level targeting to adjust the money supply to the population and economic growth because of psychological biases. A fixed supply demurrage currency (negative interest) that is deflationary could in principle work just as well as one that does price level targeting however, the need to adjust prices would remain which is undesirable because we suffer from money illusion. So no, monetary policy is not what is causing inflation. Inflation is a backwards way of representing an increase in entropy. By that I mean the exponential x% creeping monetary inflation. A supply shock can obviously cause an arbitrary amount of inflation within an arbitrary time span.
helen___keller 5y ago
I’m sure people more educated than I can debate about this all day, I’m just saying that in the system we have as it exists today, the expectation is that the federal reserve will increase interest rates to combat inflation, and in turn this makes debt more expensive and increases the risk free yield rate Edit: and just to be clear where I’m going with this, the market adjusts along these expectations. Why has the housing market been so insanely hot for a year now? In part because money is easy, and everyone believes inflation is coming/here, so getting a 30 year loan on 3% interest is a killer deal. Consequently home values are through the roof. But this counterbalances: you end up with a higher principle and lower interest for the same monthly home payment, and take on the risk that you will be underwater on your mortgage if asset values crash when rates rise.

BirAdam 5y ago

Inflation severely disincentivizes savings and rewards consumption. This affects the behaviors of entire generations of people. If you really want an example, look at the USA post ‘71 (up to this very day) and its ever-increasing rate of consumption.

helen___keller 5y ago
Just to make sure I’m understanding, is the suggestion that people who lived through that high inflation period became more inclined to spend and less inclined to save, culturally, to this day? Do you have any links discussing this further?
- BirAdam 5y ago
  That is precisely what I am saying. Generally, this is my observed understanding by study of both history and of economics. However, there are some academics starting to look at it: https://www.amazon.com/Ethics-Money-Production-Guido-Hulsmann/dp/1610166817/ref=sr_1_1?keywords=The+Ethics+of+Money+Production&qid=1646926592&sr=8-1 https://www.amazon.com/Ethics-Money-Production-Guido-Hulsman...
- frostwarrior 5y ago
  I don't have links but it does make sense. If you have the money to buy, e.g., an Xbox, saving it will not neccesarily return you the same amount of money to buy an Xbox in the future, because inflation raised the console's price more than the extra money you got in return of your investments. If you buy the console right away, you can be sure that your asset is "One Xbox" in value, no matter the amount of inflation.
  - helen___keller 5y ago
    the assertion, as I understand it, is that if you lived through a period of inflation your generation will be spending more, and not saving as much, for _the rest of life_, meaning even in low inflation periods like the 2010s