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Have we been thinking about inflation all wrong?

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Re: Have we been thinking about inflation all wrong?

#301

Post by jljljl »

cjbgkagh wrote: post #36
jljljl wrote: post #24

Earlier quoted context omitted.

This is partly true, but lower income individuals also tend to have a higher % of their net worth eaten up by debt (via credit cards, loans, mortgages, medical debt, etc). The burden of this debt decreases with inflation, since wages can grow to match inflation but past debt + fixed rates do not. Combatting inflation by raising rates can also lead to more inequality -- wealthy investors can get higher return on "risk…

The proportion of the risk premium paid by poor people to the total total interest rate decreases with higher risk free interest rates.

True, but I don’t see why that matters? They will still be paying higher rates, with likely lower incomes, and a principle whose real value does not diminish over time (since debts are held in nominal terms). If their debts were issued with fixed rates, then inflation would eventually reduce the Real cost of their interest as well.

Re: Have we been thinking about inflation all wrong?

#302

Post by rory »

dragontamer wrote: post #76
opportune wrote: post #68

Earlier quoted context omitted.

Poor people can benefit from inflation in the sense of it wiping out debt or spurning wage inflation/decreasing wealth inequality

> wiping out debt Do poor people have access to severe amounts of debt? The #1 source of debt in the USA seems to be the home mortgage, and #2 is probably the car-loan after that. Poor people don't have access to home mortgages because they can't afford it: they're in the renter class. So all inflation does is increase the price of rents to them. Car loans are also somewhat difficult for people with low credit scores…

It's true that statistically poor people have less access to debt, especially post-2008, but the rate isn't so low that they can be called a renter class.

The lowest income quintile in the still has a 30% homeownership rate[0]. There are a lot of places in the USA where a mortgage is a lot cheaper than renting (think rust belt), and several states have fairly strong low-income mortgage programs.

[0] https://www.zillow.com/research/homeownership-by-income-9419...

Re: Have we been thinking about inflation all wrong?

#303

Post by jljljl »

tjader wrote: post #135
TameAntelope wrote: post #17

Earlier quoted context omitted.

The article's point is that it doesn't hurt the poor as much, because more poor people can find jobs, pay off their loans more easily, and they do make more money. Not to mention that the price of everything isn't going up a single number -- poor people can adjust their spending to account for the items that reflect the highest inflation, and focus on the goods that are least effected. The article isn't suggesting th…

Can't that same argument be used to lower the minimum wage when inflation is low?

That argument might justify lowering the minimum wage when there is deflation, but not when inflation is low.

At most it could justify lower COL adjustments

Re: Have we been thinking about inflation all wrong?

#304

Post by CountDrewku »

titzer wrote: post #8
cpr wrote: post #2

Sure, let's whitewash the current administration's total failure and rebrand as a success.

I think there are decades of bad policy stacked on top of each other that are responsible for the current mess.

No post body was provided.

Re: Have we been thinking about inflation all wrong?

#305

Post by imtringued »

dandanua wrote: post #107
kkoncevicius wrote: post #21

The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.

It's a tax on cash savings. It's what poor people hold. Rich people save in other ways. They also use huge loans. So that inflation can be advantageous for them.

If poor people hold cash why are they mad? Aren't they rich if they have all the money?

sarcasm...

Re: Have we been thinking about inflation all wrong?

#306

Post by CountDrewku »

triceratops wrote: post #134
aaa_aaa wrote: post #14

Earlier quoted context omitted.

Current administration created gazillions of dollars out of thin air, far more than previous ones. They deserve the credit.

Pretty sure Covid stimulus started in March/April 2020, before this administration. People somehow tend to have amnesia about stuff that began under Republican administrations after a Dem administration takes over. See also: the 2008 financial crisis, the Afghanistan and Iraq conflicts.

No post body was provided.

Re: Have we been thinking about inflation all wrong?

#307

Post by colinmhayes »

GeekyBear wrote: post #43
efdee wrote: post #16

Earlier quoted context omitted.

[citation needed]

The enormous increase in money creation is very real, but it started in the last year of the Trump administration. https://fred.stlouisfed.org/series/M1SL

Posting the m1 graph after they changed the definition is incredibly bad faith.

Re: Have we been thinking about inflation all wrong?

#308

Post by notahacker »

dnautics wrote: post #267
prewett wrote: post #250

Earlier quoted context omitted.

People who have debt is the canonical set for whom deflation would be bad Including everyone who has a mortgage: your payments stay the same, but you earn less, so they take up a larger portion of your income. Naturally this can lead people who have debts that they could have serviced without deflation now cannot service them, so they go bankrupt. This also happens with any company that has debt (which is pretty much…

"People who have debt" is dominated by financialized instruments: shorts, options, forex, margin trading, etc. all exist due to easy access to debt at low interest rates.

"People who have debt" is dominated, surprisingly enough, by people with debt. There are a lot more people with mortgages than people making leveraged trades.

For the rich loss of an opportunity to cheaply leverage their wealth is the gain of opportunities to lend their wealth at usurious rates instead, or to profit at the expense of the productive from simply selling off their assets and doing nothing with their cash but wait for the price to fall so they can buy stuff back for less.

For ordinary people whose net worth is mostly tied up in a property that's falling in value but not in mortgage repayments and whose wages are about to be reduced, the opportunities are less exciting. (Sucks for the rich trying to run companies rather than just letting their investment manager allocate their wealth to whatever grows it best in the current climate too)

Re: Have we been thinking about inflation all wrong?

#309

Post by lend000 »

Note that the only times in the last few decades (and possibly throughout modern history) that wealth inequality decreased were during economic recessions [0]. Sometimes, you just need to let the market reallocate capital. Short term versus long term thinking. Governments should be primarily in the business of long term thinking, because they are the only organizations positioned to do so.

[0] https://fred.stlouisfed.org/series/WFRBST01134

Re: Have we been thinking about inflation all wrong?

#310

Post by imtringued »

kkoncevicius wrote: post #52
wodenokoto wrote: post #37

Earlier quoted context omitted.

The whole point of inflation is to keep people from storing money under the mattress. Savings are to be invested. If investments can’t beat inflation then you have a shrinking economy and no amount of deflation is going to get the wheels turning again. It’s not that Keynesian economists don’t understand that inflation is a tax on money, it’s that they see the purpose and reason for inflation from a completely differe…

Say we trade and I give you an apple. In return you give me a note saying "this note is a proof wodenokoto owns me one apple and can be exchange for one apple at any time". What good does making this note depreciate over time serve, except as a pressure for me to demand you return the apple as soon as possible? It acts as a mechanism which nudges me to lend less apples overall. If inflation is good, why not ramp it u…

The apple spoils, you selfishly demand another apple. The apple orchard must keep growing forever to compensate for the spoiled apples.

If the coupon spoiled via negative interest rates then the person who holds the coupon and is responsible for the storage costs is paying for the privilege of not worrying how to store an apple that is spoiling.

Barter says you buy you sell. Money says you buy and buy or you sell and sell. Quite absurd isn't it?

Replace apples with workers and the orchard with the economy.

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