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> In an inflationary economy, the winners are rich who have valuable assets whose value skyrocket - think real estate, businesses, etc. Actually, it's the oppo
by cs702 4y ago
> In an inflationary economy, the winners are rich who have valuable assets whose value skyrocket - think real estate, businesses, etc.
Actually, it's the opposite that is happening, because central banks have aggressively raised interest rates to bring inflation under control.
When rates rise, the net present value of every long-term cash-earning asset declines, and those individuals and businesses (including banks) that borrowed too much in relation to the declining value of their assets, can and will suffer large losses.
It's not a coincidence that stock markets are down, businesses are cutting costs, office buildings everywhere are starting to file for bankruptcy protection, mismanaged banks are now in financial distress, venture capital firms and their investors are facing the prospect of large losses, and so on.
- ed_elliott_asc 4y agoIsn't the problem with raising interest rates that the rich with savings have assets that improve and the poor with debts have loans that get worse?
- cs702 4y ago> have assets that improve The opposite is happening: Asset values are declining. Stocks, bonds, property, etc. -- all declining in value. That's the reality.
- Rury 4y agoRising interest rates make debts worse and asset values (including those belonging to the rich) to decrease, whereas it's mostly just the value of money which improves. Also, who is rich/poor and has assets/debts can be hard to tell from appearances alone. Would you call this guy poor [0]? Seems like he has a good life. Which begs the question... when we talk about taxing the rich, who are we thinking of exactly? Someone living beyond their means, or below their means? [0] - https://www.youtube.com/watch?v=r0HX4a5P8eE https://www.youtube.com/watch?v=r0HX4a5P8eE