3 ms·

Inflation is not interest rates, it’s perfectly normal and proper to have higher interest rates than inflation. They’re only linked due to rehypothecation of m

Inflation is not interest rates, it’s perfectly normal and proper to have higher interest rates than inflation. They’re only linked due to rehypothecation of money supply which is a problem in an of itself. But it gets a little complex to explain. Edit: my brain skipped over the ‘cash’ part and assumed ‘risk free’ interest would still be collected.

slg 4y ago
Can you explain why you think this disputes my point? The real interest rate is the nominal interest rate minus inflation. When there is inflation, the real interest rate for holding cash is negative. When there is no inflation, that real interest rate is 0%. The disincentive to holding cash disappears and therefore more people hold cash.
- cjbgkagh 4y ago
  > The real interest rate is the nominal interest rate minus inflation. Yes. > When there is inflation, the real interest rate for holding cash is negative. No. This assumes nominal interest rate stays constant which it very much will not do.
  - slg 4y ago
    I'm still not following your line of thinking. The nominal interest rate on holding cash is always 0%.
    - cjbgkagh 4y ago
      You’re right, I didn't read your question accurately. By cash I assumed interest collecting back accounts. The missing out of the opportunity to make risk free money is punishment enough. If people elect to do this then they don’t think it’s risk free and thus are paying a premium to reduce risk.
      - slg 4y ago
        Ok, glad we are on the same page now. "Holding cash" is vague enough that it could still be in a bank. I thought it was clear what I was talking about since I made the distinction between savings accounts and storing cash under a mattress in my first comment. Savings accounts are risk-free in the same sense that US bonds are risk-free. There is technically some level of risk, but there would have to be a pretty unlikely turn of events to actually lose money. However, there are a whole lot of people out there that don't trust banks and don't trust the government.

slg 4y ago

Can you explain why you think this disputes my point? The real interest rate is the nominal interest rate minus inflation. When there is inflation, the real interest rate for holding cash is negative. When there is no inflation, that real interest rate is 0%. The disincentive to holding cash disappears and therefore more people hold cash.

cjbgkagh 4y ago
> The real interest rate is the nominal interest rate minus inflation. Yes. > When there is inflation, the real interest rate for holding cash is negative. No. This assumes nominal interest rate stays constant which it very much will not do.
- slg 4y ago
  I'm still not following your line of thinking. The nominal interest rate on holding cash is always 0%.
  - cjbgkagh 4y ago
    You’re right, I didn't read your question accurately. By cash I assumed interest collecting back accounts. The missing out of the opportunity to make risk free money is punishment enough. If people elect to do this then they don’t think it’s risk free and thus are paying a premium to reduce risk.
    - slg 4y ago
      Ok, glad we are on the same page now. "Holding cash" is vague enough that it could still be in a bank. I thought it was clear what I was talking about since I made the distinction between savings accounts and storing cash under a mattress in my first comment. Savings accounts are risk-free in the same sense that US bonds are risk-free. There is technically some level of risk, but there would have to be a pretty unlikely turn of events to actually lose money. However, there are a whole lot of people out there that don't trust banks and don't trust the government.