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In Fed and Out, Many Now Think Inflation Helps

nytimes.com

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Re: In Fed and Out, Many Now Think Inflation Helps

#81

Post by Houshalter »

snowwrestler wrote: post #75
jswinghammer wrote: post #8

Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist? The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.…

Inflation is only theft if you insist on storing value in cash--a financial instrument that is not designed to hold value. A major reason to manage for low, consistent inflation is to train people to put their money into real assets.

Where do you think cash goes if not into someone else's hand? It's like a game of hot potato constantly tossing it around to someone else so they hurt from it losing value, and not you. But in the end everyone handles it for some amount of time and gets burned the same amount.

Re: In Fed and Out, Many Now Think Inflation Helps

#82

Post by GeneralMayhem »

BrandonMarc wrote: post #67
jswinghammer wrote: post #8

Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist? The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.…

Exactly. Continuous inflation is frankly the only plan the government has to deal with the national debt. Borrow now, and in the future when your currency is weaker and less valuable, the amount borrowed will seem smaller (and in pragmatic terms will be by that point). Of course it's destructive to the average person / taxpayer, but who cares about them? Nobody does who's in charge, that's for sure.

Except the average person sees the exact same benefit, ideally. It's the same platform William Jennings Bryan campaigned on way back in 1896 - expanding currency helps people who have debt.

Inflation makes the past matter less. It erodes both the wealth of the super-rich and the debt of everyone else (the farmers who had to mortgage their farms in 1896; the normal family now who has a home mortgage as the norm). That's very attractive to a lot of people, not just those managing the national debt.

Re: In Fed and Out, Many Now Think Inflation Helps

#83

Post by ok_craig »

snowwrestler wrote: post #75
jswinghammer wrote: post #8

Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist? The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.…

Inflation is only theft if you insist on storing value in cash--a financial instrument that is not designed to hold value. A major reason to manage for low, consistent inflation is to train people to put their money into real assets.

Look where that got us...

Re: In Fed and Out, Many Now Think Inflation Helps

#84

Post by jayfuerstenberg »

Mikeb85 wrote: post #69
jayfuerstenberg wrote: post #66

Earlier quoted context omitted.

I would invite you to look at gold prices over the last 20 years. I only wish I could go back in time and tell my 20 year old self to buy lots of it back when it was in the $300/toz range. Right now it's sitting pretty at $1351/toz.

And oil prices have gone up just as much. Once upon a time oil was a dollar a barrel... Come on, inflation increases the value of all commodities, gold, silver, oil, corn, wheat, etc... It's not like gold is special.

Gold is special. It's easier to carry than a barrel of oil, and stays fresher longer than a bunch of corn or wheat. That's why gold tends to get used as money over and over in history.

But you're right about one thing... inflation increases the value of real assets.

Or to put it better, the value of real things doesn't change (a loaf of bread is a loaf of bread) but the value of the dollar weakens in regards to it with inflation. Bringing us back to the beginning of the argument that inflation steals the purchasing power of people.

If I bought gold 20 years back I would have paid $300 for 1 toz. That same 1 toz of gold today costs me $1351. The gold hasn't changed. The US$'s purchasing power has.

[EDIT: I should mention that inflation isn't the sole reason it takes more money to buy gold than 20 years ago. There are of course some other factors.]

Re: In Fed and Out, Many Now Think Inflation Helps

#85

Post by thaumasiotes »

netpenthe wrote: post #17
thaumasiotes wrote: post #12

Earlier quoted context omitted.

Well, deflation sounds like it would be good for anyone with a positive net worth, but the empirics are awful.

a small amount of inflation (2-3%) is generally seen as good and the target of reserve banks around the world... you think they have this target because inflation is BAD? inflation encourages investment (better invest to beat inflation) deflation is bad unless you already have a lot of money. it discourages investment (why invest? i can just sit here and the value of my money goes up) you can call inflation bad, but…

How is this a response to me? I just pointed out that deflation generally goes along with terrible circumstances.

> deflation is bad unless you already have a lot of money.

Deflation is bad even when you do already have a lot of money, for the reasons you describe. This is a good place for the argument "a rising tide lifts all boats".

Re: In Fed and Out, Many Now Think Inflation Helps

#86

Post by greenyoda »

Mikeb85 wrote: post #31
ams6110 wrote: post #18

Earlier quoted context omitted.

Exactly. Inflation is a painless (for the government) way out of the debt problem the government itself has created. That's why they favor it, nobody has to make any hard choices, and the middle and lower income families get screwed, again, because everything now costs more.

Inflation actually favours the middle and lower income families if they own a house, have any debt, or any investments. Which of course is most of them.

Whether it helps or hurts someone depends on how much debt they have compared to their (rising) expenses. It also assumes that the interest rate on their debt doesn't go up as inflation rises, which it certainly can (e.g., for credit card debt and variable rate mortgages).

For investments, it depends on the type of investment. For example, if you own bonds, the interest rate is paid based on the purchase price of the bond in pre-inflation dollars, and the higher the rate of inflation, the less your interest payments will be worth. By the time the bond matures, the amount you may have gotten back in principal and interest may be less in real dollars than what you paid for it (and you'll still need to pay taxes on the interest). Same for savings accounts: if they don't pay an interest rate that's above inflation, you'll be losing real dollars after inflation and taxes.

Re: In Fed and Out, Many Now Think Inflation Helps

#87

Post by snowwrestler »

nerfhammer wrote: post #30
ams6110 wrote: post #18

Earlier quoted context omitted.

Exactly. Inflation is a painless (for the government) way out of the debt problem the government itself has created. That's why they favor it, nobody has to make any hard choices, and the middle and lower income families get screwed, again, because everything now costs more.

The price of labor is a price and should rise with everything else. Average income should track inflation.

Average income grows faster than inflation because of real economic growth.

In the U.S. we've had positive inflation numbers for most of the last 80 years, which has coincided with significant across-the-board improvements in standard of living.

Re: In Fed and Out, Many Now Think Inflation Helps

#88

Post by 001sky »

hudibras wrote: post #45

Any comment in this thread that doesn't contain the words "liquidity trap" can safely be ignored. I know that a lot of HNers don't believe that economics is a real science and would rather go with gut feelings or whatever Ron Paul says, but please take a few minutes to read the seminal paper on liquidity traps: http://www.brookings.edu/~/media/projects/bpea/1998%202/1998... You may not agree with it, but at least you…

I respectfully disagree. The purpose of inflation in this context is to "kill the debt", because the US cannot pay out $17T or even maintain interest payments, with "non-inflated" dollars. That is why all of this is just hand-waving and subversive, mis-directing PR.

The reason Japan is such a bad example is precisely inflation. But its death-nell was asset inflation, not cpi. Housing stocks and Bank loans were massively overinflated and never allowed to correct. The notion that this "inflation" should have been corrected with "other inflation" is one of those laughable bits of rediculousness.

Likewise, the US in a funk caused by Asset inflation. Fighting it with price inflation will be interesting. Take a look at the London property market. Do you think raising the price of consumer goods will help? Wont people just be encouraged to park their cash in property (ie, real goods?). Right now, they are trying to "make housing more affordable" by interest rate subsidies (inflationary). Doesn't seem to be making anything more affordable, though.

Re: In Fed and Out, Many Now Think Inflation Helps

#89

Post by sliverstorm »

Mikeb85 wrote: post #69
jayfuerstenberg wrote: post #66

Earlier quoted context omitted.

I would invite you to look at gold prices over the last 20 years. I only wish I could go back in time and tell my 20 year old self to buy lots of it back when it was in the $300/toz range. Right now it's sitting pretty at $1351/toz.

And oil prices have gone up just as much. Once upon a time oil was a dollar a barrel... Come on, inflation increases the value of all commodities, gold, silver, oil, corn, wheat, etc... It's not like gold is special.

Gold is shiny though. How could it not be special?

Re: In Fed and Out, Many Now Think Inflation Helps

#90

Post by jafaku »

drakaal wrote: post #26
thaumasiotes wrote: post #12

Earlier quoted context omitted.

Well, deflation sounds like it would be good for anyone with a positive net worth, but the empirics are awful.

Deflation is actually bad for people with positive net worth, it helps most the people who live pay check to paycheck because their money goes farther. People with lots of networth are usually hurt by deflation which is the reason it is seen as bad. Deflation means houses and capital assets are worth less than they were before, so people with a positive net worth are "hurt". Now if you are totally liquid, then deflat…

> Deflation means houses and capital assets are worth less than they were before, so people with a positive net worth are "hurt".

That's wrong, houses can be bought with less money because the purchasing power of money increased, not because houses are losing value. In a deflationary economy, the owner of a house could be richer if instead he holds money. By holding the house instead of money he has the same wealth (assuming the value of the house didn't change for other reasons).

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