Money and wealth • Hacker News Board

Re: Money and wealth

#91

Post by a8da6b0c91d » Fri, Jan 10, 2014, 5:01 PM UTC

mullingitover wrote: post #80

a8da6b0c91d wrote: post #74

Cash is a hedge against deflation. Many vast fortunes have been made by people who held cash, rode deflation down, and then bought assets at the bottom. You want a substantial fraction of your portfolio as cash to hedge deflation, just as you want a fraction in hard assets to hedge stagflation. You of course want a fraction in income generating ventures and equities that do very well in an environment of growth, as a…

> We haven't had a serious bout with deflation in 80 years so people have grown overly biased against cash. Coincidentally we're not tying the money supply to stuff we dig out of the ground, growing the money supply is now only as difficult as turning on the printing press. Unless that changes, I don't see how deflation is a serious threat anymore.

Debt based currencies deflate when a lot of debts go bad. When somebody declares bankruptcy and debt goes bad, that's money going "poof" and disappearing from the banking system, with knock-on effects. That's what happened in the 30s and nearly happened in 08. Whether or not the gold convertibility window is open doesn't much figure into it. If the US government were to partially default on its debts, or a lot of banking sector debt were to go bad, the value of US dollar cash would sky rocket as people scrambled to deleverage. This happened in 08. This happened in Japan in the 90s.

Re: Money and wealth

#92

Post by swombat » Fri, Jan 10, 2014, 5:01 PM UTC

natural219 wrote: post #54

I'm surprised nobody has mentioned the PG article that makes pretty much the same point. One of my favorite essays by him, incidentally. http://paulgraham.com/wealth.html

Hah. I forgot he wrote one (even though I've quoted him in some of my articles). It does make similar points in his "Money Is Not Wealth" section in there.

It's not very surprising that others have said this - it's a sensible idea that's fairly well understood by some... but thoroughly misunderstood by others (still, and probably forever).

Re: Money and wealth

#93

Post by imgabe » Fri, Jan 10, 2014, 5:02 PM UTC

notdonspaulding wrote: post #88

imgabe wrote: post #69

Earlier quoted context omitted.

As far as I know there are no proposals to redistribute wealth by seizing assets from wealthy people. They mostly revolve around increasing taxation. Right now, when Bill Gates wants to use some of his wealth that is tied up in Microsoft stock, he has to sell it. When he sells it, he pays a capital gains tax of 15%. If we increase that tax, Bill gets less money and more of it goes to the government to be redistribute…

I'm sorry, how is capital gains tax different from "seizing of assets from wealthy people" again? It seems like a distinction without a difference.

The government ends up with cash, not a pile of Microsoft stock, which is the situation the OP was advocating against. The difference is the government doesn't have to sell off and devalue the stock to extract the value from it.

Yes, technically the government is inserting itself into the transaction and seizing some of the value. But that's what all taxes do.

The government is also the party that is responsible for enforcing the terms of the transaction (via the justice system) if one party where to try to defraud the other. In effect it's more like a transaction fee.

Re: Money and wealth

#94

Post by jlcx » Fri, Jan 10, 2014, 5:03 PM UTC

mathattack wrote: post #25

Very good comments, though I disagree on just one point: Money is a medium of exchange for wealth, it is not a store of wealth. It actually is a store of wealth. Money buys investments, which is where you store wealth. Money is easily transferable in and out of interest bearing accounts, which is a way to store wealth.

The fact that you can buy investments with money makes it a medium of exchange. Money is theoretically supposed to be a store of value as well, but it is not a good store of wealth, due to inflation. With current central bank policy (or at least Fed policy in the US), most interest bearing accounts are not currently a good way to store wealth, because after adjusting for inflation, their low interest rates mean that you are actually losing wealth over time.

Re: Money and wealth

#95

Post by dragonwriter » Fri, Jan 10, 2014, 5:05 PM UTC

notdonspaulding wrote: post #88

imgabe wrote: post #69

Earlier quoted context omitted.

As far as I know there are no proposals to redistribute wealth by seizing assets from wealthy people. They mostly revolve around increasing taxation. Right now, when Bill Gates wants to use some of his wealth that is tied up in Microsoft stock, he has to sell it. When he sells it, he pays a capital gains tax of 15%. If we increase that tax, Bill gets less money and more of it goes to the government to be redistribute…

I'm sorry, how is capital gains tax different from "seizing of assets from wealthy people" again? It seems like a distinction without a difference.

Eliminating the favorable taxation of capital income compared to labor (and most other) income is eliminating a feature of the status quo tax system, which amounts to major capitalists seizing wealth from everybody else.

Re: Money and wealth

#96

Post by panarky » Fri, Jan 10, 2014, 5:06 PM UTC

jerf wrote: post #31

This is also why wealth redistribution works far less well than people who imagine it as money redistribution think it will. Part of the wealth is tied up in the owner, and that can't be redistributed without loss, sometimes great loss. Let's take a concrete example. Suppose that class warfare rhetoric utterly wins, and as its first scalp The People decide that the filthy rich Bill Gates needs to have 100% of his wea…

Naturally, trying to sell a billion shares of MSFT all at once will not work well. But that proves nothing about the wisdom of redistribution.

If you insist on confiscating Bill Gates' wealth, maybe you could hold the stock as an income-generating asset and redistribute the dividends.

Re: Money and wealth

#97

Post by ForHackernews » Fri, Jan 10, 2014, 5:07 PM UTC

swombat wrote: post #12

agscala wrote: post #6

Earlier quoted context omitted.

What do you suggest is better than rental real-estate as a income-producing asset to invest in? Entrepreneurship is great and all but the risk is frighteningly high

The risk is not so high, actually, imho: http://swombat.com/2012/6/18/entrepreneurship-safest-career

The risk is only not-high for people who have a decent safety net to fall back on (spouse, parents, or savings) and/or low obligations (i.e. your children won't go hungry if your startup busts)

That's not to disagree with your overall point--yes, you won't LITERALLY DIE--but relatively few people have the luxury to keep swinging and missing in the hopes of getting a hit.

Re: Money and wealth

#98

Post by dbla » Fri, Jan 10, 2014, 5:09 PM UTC

hooande wrote: post #63

jerf wrote: post #31

This is also why wealth redistribution works far less well than people who imagine it as money redistribution think it will. Part of the wealth is tied up in the owner, and that can't be redistributed without loss, sometimes great loss. Let's take a concrete example. Suppose that class warfare rhetoric utterly wins, and as its first scalp The People decide that the filthy rich Bill Gates needs to have 100% of his wea…

Following the logic of this post, you can't redistribute wealth , only money. ” The People” don't want to own companies, they want enough money to feed their families. The problem isn't that Bill Gates has a lot of money, it's that wealth is a system of exponential growth. It is somewhat unfair that his money allows him to make more money at such an outsized rate. Taxes are a way to put wealth on an logarithmic scale…

I'm not sure I would say that "The People" don't want to own companies. This report from Give Directly suggests that giving money directly to the poor resulted in a "+116% percent increase in monthly household investment in land, farm inputs, livestock, housing and household durables..."

http://www.givedirectly.org/pdf/2012AnnualReport.pdf

These purchases are money generating assets. I think you touch on an important point though. It's much easier for a random individual to turn money into a money generating asset than it is for them to take a random money generating asset (MSFT stock) and turn it into cash. Ownership of a money generating asset requires domain knowledge, whereas you can choose to spend money where you already have domain knowledge.

Re: Money and wealth

#99

Post by karmajunkie » Fri, Jan 10, 2014, 5:09 PM UTC

I had a sneaking suspicion about the source of the thoughts behind the article as soon as I read the phrase "net income generating assets"—then saw the culprit in "Rich Dad, Poor Dad".

If you're going to read Kiyosaki's books, then you need to also do yourself a favor and read the criticisms thereof. Kiyosaki borders on a fraud, and many of the rich-dad'isms are flat out illegal. Indeed, as far as anyone is able to ascertain, most of Kiyosaki's traceable money comes not from real estate as he claims, but from selling his books and seminars.

Re: Money and wealth

#100

Post by maerF0x0 » Fri, Jan 10, 2014, 5:09 PM UTC

tomstokes wrote: post #10

The takeaway from this article is that hoarding cash is not a good store of wealth, and that the key to long-term wealth is to acquire net income generating assets. Great points for sure, but I strongly disagree with his assertions that saving up for retirement is ill-advised and that traditional investments (stocks, etc.) are too volatile and risky to be useful. He never explicitly gives any advice for acquiring net…

Agreed that he misses the point with retirement. "Saving up" for retirement doesnt mean $1M in cash, it usually means $1M in income producing assets pieces of profitable businesses and future promises of more (bonds).