5 ms·
Are you saying there is something wrong with nominal inflation? 2% a year is scary when you talk big numbers like that, but the only time that money spans that
by Guvante 13y ago
Are you saying there is something wrong with nominal inflation? 2% a year is scary when you talk big numbers like that, but the only time that money spans that large of time spans is retirement, which is invested at well over inflation even if you choose something like government guaranteed bonds.
To my knowledge the only way to lose money to inflation is to sit on cash (stupid for other reasons), have it in short term treasury bonds (which are bought by companies that have nothing to do with their flex cash), or have a bad savings account.
- Filligree 13y ago> short term treasury bonds Hold on. If those are worse than even savings accounts.. why would said companies not put their money in a normal savings account?
- Guvante 13y agoI do not run the fiscal policy of a huge company, so I am speculating, but here goes: Savings accounts are considered perfectly safe due to FDIC. If you have $10 million for six months you can't do anything with but don't want to invest, Treasury Bonds are zero risk and have some kind of return. In contrast there is a minor risk that a bank could go under. Especially when you consider that you have several accounts with a bank, and you have say $20 million in your accounts total, why add to that?
- jonknee 13y agoWell and the FDIC doesn't really apply here since it only covers $250k. You're right on why the treasuries are appealing though, it's basically a bank account for large amounts.
- jstalin 13y agoYes, it is harmful, particularly to savers. Of course, the Holy Keynesian view is that savings is bad and that we all need to be encouraged to spend. Tell me right now where I can save and earn more than 2%. Maybe 30 year treasuries (with nominal values at 30 year highs, meaning that they have no where to go but down, further eroding savings), but certainly not in savings, a CD, or any other classic savings product. 2% compounding per year is a 22% loss in value over just 10 years. Chasing yield over that 2% per year further distorts savings and markets, and of course that 2% loss per year is good for what? It's just confiscation by the money printers to devalue future debt payments, making it seem all the easier to borrow and spend unsustainably. But, of course, a steady 2% per year is the pipe dream of central planners and doesn't happen in real life. See, e.g., the 1970s.
- EvanKelly 13y agoTreasury Inflation Protected Securities (TIPS) adjust your principal accordingly with the CPI. You also get the coupon rate.
- thomaspaine 13y agoSmall nominal inflation encourages investment, whereas deflation incentivizes people to just hold their money in the form of cash.
- jstalin 13y agoOf course, the other option is stability. I'm not saying that bitcoin's deflationary behavior is good, only that it challenges the accepted collective wisdom.
- sergiosgc 13y agoSaving is not harmful nor beneficial. It all depends on what you do with your savings. If you stuff them under the mattress, saving is harmful. If you invest, then it's beneficial. An inflationary currency promotes investment. A deflationary one promotes mattress stuffing. You may draw the conclusion yourself.
- jquery 13y ago> If you stuff them under the mattress, saving is harmful. I don't see how. Isn't this equivalent to a distributed loan to everyone who holds dollars?
- sergiosgc 13y agoIt is unstable. The currency is deflationary by design and the mattress effect effectively reduces monetary mass, creating more deflationary pressure. Up until the point price drops suddenly. It is the poster example of a bubble: artificial valuation, self feeding cycle, disruptable only by change of public perception.
- 13y ago
- ekianjo 13y agoYou are always losing money to inflation. First, you always need to have cash because there is no cashless economy and you need cash to pay for everyday expenses, and that is a significant amount of money impacted by inflation. Second, there is no serious rationale to have inflation (except to make it easy for governments to pay their debt and make everyone else poor), despite what Keynesians bring back on the table every single time without evidence (and citing the current "economist consensus" as a proof, even though they fail to realize economists were thought and raised the believe in Keynes' theory for dozens of years - hardly convincing). As another poster mentioned, even without inflation the money you have now is worth more than the money you have tomorrow, therefore there would still be time-value attached to a currency even if no inflation is there. Inflation is punishing savers, in turn punishing investment and lowering the economic expectations.