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Comment by chordalkeyboard | Hacker News Reader

> Inflation only matters from the time you receive your paycheck to the time you invest it in productive assets or buy the necessities of life.

It means the people who save by depositing cash in the bank lose value over time, causing them to purchase investments out of necessity (rather than purchasing them because they believe its a good investment). This bids up the price of investments relative to their return, which effectively reduces returns to a level commensurate with the artificially low interest rates.

It also negatively impacts anyone who is long cash for any reason (perhaps their business requires them to retain a certain amount) and anyone who relies on fixed payments denominated in dollars (retirees, pensioners, disabled persons, those on public assistance, etc.).

> After that it sets the benchmark rate of return for your investments.

Those are nominal returns, not real returns. Inflation generates no real returns.

> If your salary fails to track inflation that's between you and your boss who's giving you a pay cut year over year

Nice rhetorical judo, to frame the central bank’s actions as normal and the lack of an increase as a decrease.

> or between you and congress if you're under the minimum wage umbrella.

Alas, if congress could lower the minimum wage without political fallout, economists might suggest they do that instead of inflating the money supply.

> Currency only has value while its changing hands and inflation is an incentive to change hands. If you'd invested in anything at all 100 years ago you'd have just as much value as you do today. If you insisted in sticking a square peg in a round hole and hid your cash in your mattress the whole time, inflation did its job and took that value from you.

This is why time preference should be taught in school.

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> It means the people who save by depositing cash in the bank lose value over time, causing them to purchase investments out of necessity.

Ah you get it. That's the idea. Buy gold if you want, buy real estate, buy annuities, buy fixed incomes, I don't care, but money is an intermediary - not a long-term store of value. If you treat it as one you'll have a bad time. Just like if you treated your car as a boat. It'll work for a bit, then it'll sink. Because it's the wrong tool for the job.

> Those are nominal returns, not real returns. Inflation generates no real returns.

Did I say inflation generated returns? No, I said it sets the benchmark rate of return for your investments. If your investments fail to exceed inflation they're not the right choice. That's your duty in a capitalist society - to pick winners by investment.

> Nice rhetorical judo, to frame the central bank’s actions as normal and the lack of an increase as a decrease.

They're paying you less value so it's a decrease. You're tripping yourself up focusing on units instead of what they represent. After all, inflation has many positives, too.

> Alas, if congress could lower the minimum wage without political fallout, economists might suggest they do that instead of inflating the money supply.

That's between you and congress, not between you and Janet Yellen.

> This is why time preference should be taught in school.

I'd argue this conversation is why ECON 101 should be mandatory, so folks have the tools they need to thrive in modern society instead of, well, tilting at windmills.

> Ah you get it. That's the idea. Buy gold if you want, I don't care, but money is an intermediary, not a long-term store of value.

Only because the wealthy benefit from depreciating currency. It doesn’t have to be this way, and it is this way because of policy that is designed to benefit the ultra-wealthy.

> They're paying you less value so it's a decrease. You're tripping yourself up focusing on units.

They’re paying the same, but the units depreciated because the oligarchs want workers’ wages to go down.

> If you treat it as one you'll have a bad time. Just like if you treated your horse as a boat.

Or treat a savings account as a savings account.

> Only because the wealthy benefit from depreciating currency

Source this claim. Everyone benefits from a depreciating currency because inflation provides a buffer against deflationary spirals that lead to large recessions and job losses for people of all classes. Tell me exactly how inflation benefits only the ultra-wealthy and not anyone else.

> because the oligarchs want workers’ wages to go down.

I would suggest that you clarify this claim so it does not sound so much like a conspiracy theory.

> Source this claim.

Asset price inflation vs depreciation of debt in real terms. Wealthy people hold assets that are valued in currency. Depreciating currency causes those assets to go up in nominal terms, and additionally depreciating currency causes a flight to assets. Wealthy people (by definition) have more assets than non-wealthy people, hence this flight from currency to assets bids up the prices of assets.

> Everyone benefits from a depreciating currency, because inflation provides a buffer against deflationary spirals that lead to large recessions.

Thats a theory-laden and motivated explanation. Surely you can do better than just argument by assertion?

> Tell me exactly how inflation benefits only the ultra-wealthy and not anyone else.

Thats not my claim.

> I would suggest that you clarify this claim so it does not sound so much like a conspiracy theory.

I suggest you do your own research and discover that the central bank is very much fact and not at all theory.

> Depreciating currency causes those assets to go up in nominal terms

That does not increase the real value of those assets, and it does not have any distributional consequences.

> Thats a theory-laden and motivated explanation

You could go read like, any of the vast literature on the great depression, the things that caused it and the things that made it worse. But you'd rather expose your ignorance on the Internet for us to see.

> discover that the central bank is very much fact and not at all theory.

I happen to know a lot about central banking, actually. You might be pulling a Dunning-Kruger on this one.

> That does not increase the real value of those assets,

Exactly correct. It decreases the value of the money use to pay for them, resulting in a higher nominal price and fewer people in society who are able to afford them, resulting in less access to capital for the majority of society.

> and it does not have any distributional consequences.

False. When assets go up relative to currency, fewer buyers can compete for those assets, leading to the wealthy owning more and the poor getting poorer.

> But you'd rather expose your ignorance on the Internet for us to see.

I’m quite sure I’ve acquitted myself satisfactorily in this discussion, if you feel the same about yourself, perhaps you’re the one who needs to peruse the literature.

> I happen to know a lot about central banking, actually. You might be pulling a Dunning-Kruger on this one.

Then how could you have been ignorant of Krugman’s statements to the effect that inflation was necessary because workers’ make too much money? Did you know he had said that? If so, why ask me for a source? If not, how much do you really know about central banks? Especially if you think that the words of several economists are evidence of some conspiracy?

"Low, stable inflation increases inequality" is not a statement that you could find much agreement on from economists.

Also, Krugman is just a pop-econ writer at this point. He is not a big deal in the economics profession. Yes, I am sure he understands how inflation and sticky wages interact. I am not so convinced that you understand it. Just going to repost my other comment for you to puzzle over:

"You are purposefully ignoring the normal explanation, which is this: because wages are sticky, firms that need to cut costs in a recession are more likely to lay off people than they are to give pay cuts. Inflation helps to weaken that rigidity so that job losses are not as large. Maybe you know that.

You claim that central banks depreciate the currency because they "think wages among the working class are too high." But rhetorically, you are doing more than just referring to the explanation I gave above. You are implying that central banks "think" working class wages are too high, and want to lower them to hurt working class people.

Which is the opposite of the standard explanation - the purpose of inflation in that instance is to implicitly reduce the downward rigidity of wages so that employment does not contract as much in a downturn.

Presumably you, champion of the working class, would rather more people be unemployed?"

> You claim that central banks depreciate the currency because they "think wages among the working class are too high." But rhetorically, you are doing more than just referring to the explanation I gave above. You are implying that central banks "think" working class wages are too high, and want to lower them to hurt working class people.

Oh I know it does seem like the banks “want to hurt working class people” when you look at what they are doing and why. But thats an unnecessary hypothesis. They don’t need to care about working class people at all, just the financial interests of the oligarchs.

> Which is the opposite of the standard explanation - the purpose of inflation in that instance is to implicitly reduce the downward rigidity of wages so that employment does not contract as much in a downturn.

In other words, trick the workers into taking a pay cut, because they make too much money. “For their own good” and how convenient that it happens to pump up the assets that the wealthy own.

> Presumably you, champion of the working class, would rather more people be unemployed?

I want them to be unemployed the same way you want them to make less money in real terms.

> When assets go up relative to currency, fewer buyers can compete for those assets, leading to the wealthy owning more and the poor getting poorer.

Boy are you going to freak out when you learn about stock splits and fractional share investing.

> Boy are you going to freak out when you learn about stock splits and fractional share investing.

You really must be confused if you think thats a rebuttal.

Absolute value of assets doesn't matter. What matters is future appreciation potential of those assets. That's my point. You can infinitely subdivide them and see the same appreciation potential recognized over a greater number of units.

Yes people who got in before you may have done better than you. They may not have. But the absolute price isn't relevant since owning AAPL shares isn't a necessity for life. On the other hand the absolute affordability of elements of the CPI basket does matter, which is why the CPI basket includes actual apples and not AAPL shares.

Remember when you invest in something what you want is for it to become less affordable. That decrease in affordability is called an "ROI" or return on investment.

> Absolute value of assets doesn't matter. What matters is future appreciation potential of those assets. That's my point.

Someones ability to buy in to those assets is relevant for their ability to realize that appreciation.

> You can infinitely subdivide them and see the same appreciation potential recognized over a greater number of units.

So? The units here don’t matter. The fact that the central bank policy resulted in real wage decrease and nominal asset price increase means that central bank policy benefitted the asset seller at the expense of the asset buyer. Playing fast and loose with units doesn’t change this.

> Remember when you invest in something what you want is for it to become less affordable. That decrease in affordability is called an "ROI" or return on investment.

This is a revealing statement and is actually good example of how central bank policy has distorted even the way people think about assets. You only want your investments to increase in price if you intend to sell or collateralize them. As investments proper, you want to earn dividends. But inflation has driven the prices of assets far out of proportion to their returns, so now people think of r.o.i. as something that happens when you sell.

> Someones ability to buy in to those assets is relevant for their ability to realize that appreciation.

With fractional shares all that matters is how much cash they bring to the table now how many individual units of stock they can purchase and that cash can then track the return of the underlying equity.

> You only want your investments to increase in price if you intend to sell or collateralize them. As investments proper, you want to earn dividends.

uh... no my dude. Whether a company buys back the shares, or issues a cash dividend, warrants, or someone else is willing to pay you more for the same shares, you've obtained what's called a "total return."

What any investor is looking for is a total return, and it doesn't matter in what form. Inflation only sets the benchmark rate for total return.

When a company issues a dividend its stock price drops by the decrease in net asset value of the company once the dividend is issued. It's actually a no-op to issue a dividend from a total return perspective. Whether the money comes from a different shareholder as a result of disposition, from the company as the result of a buyback, or as a dividend, is utterly irrelevant.

The difference between an unrealized gain and a dividend is the difference between a "realized" and a "mark-to-market" gain. They have different profiles, and different benefits. For instance, a mark-to-market gain can be rolled forward into different tax years where as a realized gain must be attributed to the current tax year.

Please, for the love of stocks, take an ECON class. I'm not a complementary tutor, and you're so far off the reservation it's hard to even know how to reign you in.

> uh... no my dude. Whether a company buys back the shares, or issues a cash dividend, warrants, or someone else is willing to pay you more for the same shares, you've obtained what's called a "total return."

You seem to be unaware that different investors have different investment goals.

> What any investor is looking for is a total return, and it doesn't matter in what form.

Yeah, no. Some investors want dividends, some want gains, some are more concerned with security of principle, some optimize for total return. This is taught in finance 101.

> Inflation only sets the benchmark rate for total return.

Inflation creates a margin rate of profit that must be met or a business loses money.

> When a company issues a dividend its stock price drops by the decrease in net asset value of the company once the dividend is issued.

It depends. Sometimes the price goes up because they have shown that they are in a position for the owners to take profit. Sometimes it goes down because shareholders want to reinvest their capital elsewhere and its timely to do this immediately after dividend receipt (because you’re not waiting for the next dividend).

> The difference between an unrealized gain and a dividend is the difference between a "realized" and a "mark-to-market" gain. They have different profiles, and different benefits. For instance, a mark-to-market gain can be rolled forward into different tax years where as a realized gain must be attributed to the current tax year.

I’m glad you understand this. Now based on this, can you see why some investors would prefer dividends and some would prefer capital gains?

> Please, for the love of stocks, take an ECON class. I'm not a complementary tutor, and you're so far off the reservation it's hard to even know how to reign you in.

Really now, this is rich. If you think my perspective is that outlandish then you truly have not studied this to any great extent.

> Really now, this is rich. If you think my perspective is that outlandish then you truly have not studied this to any great extent.

You may have a bunch of other acolytes but that doesn't make you right.

> You seem to be unaware that different investors have different investment goals.

No, investors only have one goal: total returns. Anything else makes no sense. After all a stock that issues a $5 dividend and goes down $10 ain't worth investing in, is it?

> Yeah, no. Some investors want dividends, some want gains, some are more concerned with security of principle, some optimize for total return. This is taught in finance 101.

All are gains. At the end the day there's one bucket of money. you're saying it matters how you apportion it, and I'm telling you it does not.

If you hold 100 shares and a company that doesn't issue a dividend, but went up 1%, you can sell 1 share to obtain a 1% dividend. Or you can wait for them to issue a 1% divided and be left with 99% the value. It's a no-op. Same thing. You've failed at basic math here. There's one bucket of money. Dividends don't appear out of thin air.

> It depends. Sometimes the price goes up because they have shown that they are in a position for the owners to take profit. Sometimes it goes down because shareholders want to reinvest their capital elsewhere and its timely to do this immediately after dividend receipt (because you’re not waiting for the next dividend).

No. You are strictly wrong. When a dividend is issued the stock goes down by that amount. [1]

  After a stock goes ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment.

> I’m glad you understand this. Now based on this, can you see why some investors would prefer dividends and some would prefer capital gains?

Yes, but you have it wrong. Dividends are less valuable because they offer no flexibility in recognition date. Either way they are both treated as capital gains. In fact, I believe, correct me if I'm wrong, dividends are treated as ordinary income. On the other hand if you sell something you've held for 1 year in lieu you'll get long-term capital gains treatment.

> Really now, this is rich. If you think my perspective is that outlandish then you truly have not studied this to any great extent.

I'm an investor. I suggest you revisit ECON-101.

[1] https://www.investopedia.com/articles/investing/091015/how-d....

> No, investors only have one goal: total returns.

You’re misinformed. There are 3 considerations: dividend yield, capital gain, and security of principle.

> Both are gains. If you hold 100 shares and a company doesn't issue a dividend you can sell 1 share to obtain a 1% dividend. Or you can wait for them to issue a 1% divided and be left with 99% the value. It's a no-op. Same thing. You've failed at basic math here.

Owning cash isn’t the same as owning a business and almost everyone understands that. I’m not sure if you’re really this clueless or you’re trying to gaslight me, either way you’re wrong.

> No. You are strictly wrong. When a dividend is issued the stock goes down by that amount. [1]

> After a stock goes ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment.

> strictly

> typically

You don’t seem to understand the subject based on this exchange. Do you realize that’s not a rebuttal to what I said?

> No dividends are less valuable because they offer no flexibility in recognition date.

So if they are less valuable then you understand that some investors would prefer them less, and this is not the same as only caring about total returns?

> In fact, I believe, correct me if I'm wrong, dividends are treated as ordinary income. On the other hand if you sell something you've held for 1 year in lieu you'll get long-term capital gains treatment.

So you do understand that they are different, and investors care about more than total return?

> Owning cash isn’t the same as owning a business and almost everyone understands that. I’m not sure if you’re really this clueless or you’re trying to gaslight me, either way you’re wrong.

So sell 1% of your holdings, now you have cash, same as if you'd been issued a 1% dividend. Either you have 100 shares worth 99% as much, or you have 99 shares each worth 100%. Same thing. The difference is whether the cash remains in the coffers of the company or not. And that only matters depending on what the company plans to do with the cash.

> So if they are less valuable then you understand that some investors would prefer them less, and this is not the same as only caring about total returns?

They're less valuable because they offer less flexibility in terms of recognition date. If I made $100K in a year, I'd be very inclined to sell some shares and recognize capital gains. Much more so than if I'd made $1M. Because I'd get to keep more of them. Flexibility is worth money, but of course, more or less depending on the financial situation of the person you're talking to.

> So you do understand that they are different, and investors care about more than total return?

What on earth are you talking about. There's 1 pot of money, and the government treats the distribution methods differently. It's still a total return from the perspective of the company and the investor.

When you evaluate an investment you should take into account your tax situation. If this is in an IRA, then there's no distinction between a 1% dividend and selling 1% of your holdings. None. Same if you happened to live in Belgium. However for the purposes of this conversation the tax authority is an unrelated third party, whose created a system to incentivize a certain type of behavior.

> Inflation creates a margin rate of profit that must be met or a business loses money.

Yes, a benchmark rate as I've said about 5 times now. It's useful because it establishes the minimum total return a company must have before its worth investing in. If interest rates a 0% the company doesn't have to be too successful. If it's 12% they better know what they're doing.

Look here's the thing. Someone who tells you they want a dividend instead of a stock appreciating has no idea what they're talking about. It's the same thing. The difference is a dividend is predictable... sort of (see last year)... and taxed different. Nobody is going to turn down a 10% total return in exchange for a 2% dividend. Nobody.

> It decreases the value of the money use to pay for them

That is meaningless, though. Imagine last year you bought some asset, that someone else did not, and it appreciated 2% with the price level. You are not any better off. I see you are implying that the other person "couldn't afford" to invest and kept their money in cash instead, to argue that the other person is worse off. That is also wrong - the issue here is holding cash, not the wealth disparity. Don't hold cash if you are worried about inflation. Mutual funds have low minimums, and you can buy fractional ETF shares at this point. You have no argument here.

> Imagine last year you bought some asset, that someone else did not, and it appreciated 2% with the price level. You are not any better off.

I am better off if the nominal value of that asset matters, which it does if I want to sell it or leverage it. And anyone on a dollar denominated income is worse off.

> I see you are implying that the other person "couldn't afford" to invest and kept their money in cash instead, to argue that the other person is worse off.

You misunderstand, they don’t need to “keep their money in cash”. The asset price increased. Thats all. They are paid less in real terms, by design, therefore the asset costs more to them, because of inflation.

> the issue here is holding cash, not the wealth disparity.

This applies to people who are paid in dollars, it does not require them to hold them.

> Don't hold cash if you are worried about inflation.

Obviously the wealthy are in much better position to take this advice than the middle class, the working class, and the poor. Therefore inflation benefits the wealthy disproportionately.

> Obviously the wealthy are in much better position to take this advice than the middle class, the working class, and the poor. Therefore inflation benefits the wealthy disproportionately.

If the poor don't have cash, and their wages keep pace with inflation (they do) then how are they harmed by inflation?

> If the poor don't have cash, and their wages keep pace with inflation

Their wages don't keep pace with the inflation of assets, so they are continually unable to save or invest their way out of poverty.

> (they do)

Consumer goods and assets don't appreciate at the same rate.

> then how are they harmed by inflation?

for the umpteenth time, they are paid in depreciating units while the real value of assets appreciates in nominal units; creating a problem where in order to save they must invest, and they continually have less real income to invest, because the paychecks are getting smaller (in real terms) and the assets are getting pricier (in nominal terms).

> Their wages don't keep pace with the inflation of assets, so they are continually unable to save or invest their way out of poverty.

Yes they do. [1] Inflation of assets is ROI because its measured in terms of increased welfare relative to CPI. If CPI doesn't go up that's ROI. If CPI goes up its inflation. It doesn't matter when they enter an asset class, what matters is what happens after they enter an asset class.

[1] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...

> Their wages don't keep pace with the inflation of assets, so they are continually unable to save or invest their way out of poverty.

They're poor, they don't have cash. Their assets have their own ROI separate from the benchmark rate.

> for the umpteenth time, they are paid in depreciating units while the real value of assets appreciates in nominal units; creating a problem where in order to save they must invest, and they continually have less real income to invest, because the paychecks are getting smaller (in real terms) and the assets are getting pricier (in nominal terms).

The depreciation only matters from the time they receive their paycheck to the time they invest in productive assets or pay for necessities. Only for the time they're holding literal dollars. If it takes a full year they retain a full 98% of the value. It doesn't matter. You are wrong.

Their paychecks are not getting smaller because wages have kept pace with inflation. [1]

[1] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...

> Only because the wealthy benefit from depreciating currency. It doesn’t have to be this way, and it is this way because of policy that is designed to benefit the ultra-wealthy.

Do they? Generally inflation benefits debtors and not lenders, because debts are denominated in dollars in the year of issue, and repaid in future dollars, which are worth 2% less per year. Overwhelmingly poor and middle class folks are debtors (think mortgages). Mortgages have become more and more affordable each year. This means folks can afford more and more house for the same money, after all the bulk of the payment of a 30 year fixed is interest for the first 10+ years.

And sure enough, new homes are twice as large as they used to be.

> They’re paying the same, but the units depreciated because the oligarchs want workers’ wages to go down.

Yeah but at the end of that day that's irrelevant. The only thing that matters is what those units represent. If I gave you 5 today and 3 tomorrow does that mean anything? Or course not. 5 what and 3 what? That's what we're talking about

> Or treat a savings account as a savings account.

Totally, they offset about half of inflation because they collateralize loans. With interest rates this low, loan collateralization isn't a big value driver, so it doesn't pay much.

It's your responsibility in a capitalist society to allocate capital most productively and so if this particular allocation isn't the most productive, your job is to go find a different allocation, or to pay the inflation premium. Nobody's ever been entitled to a risk-free return in a savings account.

Money isn't a long-term store of value, it never was, and if you insist on jamming it into a round hole, you've failed to understand one of the most basic premises of modern society.

> Do they? Generally inflation benefits debtors and not lenders, because debts are denominated in dollars in the year of issue, and repaid in future dollars, which are worth 2% less per year.

Yes, exactly. This allows wealthy people to borrow money and pay it back with less value.

> Overwhelmingly poor and middle class folks are debtors (think mortgages).

Poor people often don’t have access to these extremely low interest rates because of structural inequalities and credit requirements (and exceptions tend to leave them worse off as well, see the subprime fiasco). Meanwhile the cheap credit bids up the prices of those assets, benefitting the people who have them (wealthy) as opposed to the people buying them (upwardly mobile or aspirational).

> Mortgages have become more and more affordable each year. This means folks can afford more and more house for the same money, after all the bulk of the payment of a 30 year fixed is interest for the first 10+ years.

Not in aggregate, because the cost of a house increases as people bid for houses with the cheap credit.

> Yeah but at the end of that day that's irrelevant. The only thing that matters is what those units represent. If I gave you 5 today and 3 tomorrow does that mean anything? Or course not. 5 what and 3 what? That's what we're talking about

Right, and at the end of the day those units represent less value because of the actions of the central bank. Furthermore those actions were intended to have that exact effect. So how are you claiming that business owners are supposed to work in opposition to central bank policy? Clearly if the central bank wants wages to decrease in real terms, and business owners increase them nominally to make them neutral in real terms, this frustrates central bank policy and they will logically just print more money.

> It's your responsibility in a capitalist society to allocate capital most productively and so if this particular allocation isn't the most productive, your job is to go find it.

The problem is the distorting effect of low interest rates means that what is productive in terms of nominal r.o.i. is not what is productive in real terms, but the market distortions are so pervasive and persistent that people have to chase the nominal returns. This is incredibly destructive to value, society, and community.

You've stated a bunch of stuff as fact without sources.

> Yes, exactly. This allows wealthy people to borrow money and pay it back with less value.

It lets everyone do so, and as a fraction of net worth, the poor are way disproportionately exposed, and hence benefit. A billionaire with $1B in net worth isn't leveraged to 10B in real estate. Someone worth $10K may easily have $100K in mortgage debt, however.

Why do you say people who have both debt and assets benefit more than those who have just debts? They strictly dont because those assets have to outperform inflation. Debts do not.

> Poor people often don’t have access to these extremely low interest rates because of structural inequalities and credit requirements (and exceptions tend to leave them worse off as well, see the subprime fiasco). Meanwhile the cheap credit bids up the prices of those assets, benefitting the people who have them (wealthy) as opposed to the people buying them (upwardly mobile or aspirational).

That's irrelevant - that is to say, a separate problem - because inflation affects everyone regardless of interest rate equally. Interest rates are set based on likelihood of default.

> Not in aggregate, because the cost of a house increases as people bid for houses with the cheap credit.

Yes, in aggregate, no the cost of houses hasn't increased on an inflation adjusted dollars per square foot basis since the 1970s [1]. Where it has increased on a unit basis it's due to zoning regulation and not inflation.

> Right, and at the end of the day those units represent less value because of the actions of the central bank. Furthermore those actions were intended to have that exact effect. So how are you claiming that business owners are supposed to work in opposition to central bank policy? Clearly if the central bank wants wages to decrease in real terms, and business owners increase them nominally to make them neutral in real terms, this frustrates central bank policy and they will logically just print more money.

No, this is a fundamental misunderstanding. All businesses see their expenses and revenues rise with inflation. If they choose not to adjust their salaries commensurately, they've made a conscious decision to reduce pay a fraction of income.

> The problem is the distorting effect of low interest rates means that what is productive in terms of nominal r.o.i. is not what is productive in real terms, but the market distortions are so pervasive and persistent that people have to chase the nominal returns. This is incredibly destructive to value, society, and community.

[citation needed]

[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...

> It lets everyone do so

Citation for your claim that everyone has access to cheap credit. Are you aware of payday loans? [0]

> and as a fraction of net worth, the poor are way disproportionately exposed, and hence benefit.

Citation needed for your claim that the poor can access these low interest rates.

> A billionaire with $1B in net worth isn't leveraged to 10B in real estate.

Citation needed. Why do you think a person with $11B in assets wouldn’t borrow $10B?

> Someone worth $10K may easily have $100K in mortgage debt, however.

Citation needed. Do you mean someone worth $110k has a $100k mortgage? Or do you mean someone worth -$90k has $10k in assets and liabilities totalling $100k?

> Why do you say people who have both debt and assets benefit more than those who have just debts?

Because inflation causes assets to appreciate in nominal terms (assuming constant real value) and debt to depreciate in real terms.

> They strictly dont because those assets have to outperform inflation. Debts do not.

I’m not sure what you mean by “outperform inflation”

> That's irrelevant - that is to say, a separate problem

It means your theory about poor people benefitting from low interest rates is not true.

> because inflation affects everyone regardless of interest rate equally.

Citation needed.

> Interest rates are set based on likelihood of default.

You know this and yet you continue to assert that poor people benefit as much or more than the wealthy? I guess you think a person with a minimum wage job and no assets is just as likely to default as a billionaire?

> Yes, in aggregate, no the cost of houses hasn't increased on an inflation adjusted dollars per square foot basis since the 1970s

Right, when you adjust for the inflation, it hasn’t increased at all. Which is basically the point. The prices go up because of inflation, people who hold assets sell them for more money, people who earn paychecks get the same amount of dollars but can buy less for it, etc. None of this is controversial except when saying it around the proles who might take offense at the efforts of oligarchs to eat the bottoms out of their paychecks and savings.

> No, this is a fundamental misunderstanding. All businesses see their expenses and revenues rise with inflation.

But not at the same time or at the same rate. After all, if all prices relected inflation at the same time, there would be no point.

> If they choose not to adjust their salaries commensurately, they've made a conscious decision to reduce pay a fraction of income.

No, the bankers are the ones who made the conscious decision. Good rhetorical judo tho.

> [citation needed]

> You've stated a bunch of stuff as fact without sources.

Some of it is basically common knowledge, like poor people not having the collaterall, credit history, or social value required to access the same loans as billionaires. Some of it just seems like fundamental misunderstanding on your part, like your belief that all prices inflate at the same rate.

[0] https://www.cnbc.com/2021/02/16/map-shows-typical-payday-loa...

Oh my where to even begin.

> Citation for your claim that everyone has access to cheap credit. Are you aware of payday loans?

I have at no point stated that. What I said is that inflation affects all debts equally.

Interest rate on loans is defined on "cost plus" basis, where "cost" is the treasury interest rate, and the "plus" is based on your default risk. However, the "cost" is the same for everyone no matter what.

Inflation isn't even the "cost" term. Inflation reduces the value of the principal of every loan the same amount regardless of who took it out or at what interest rate. The principal. Not the interest.

That knocks out your first 5 or 6 points.

> Do you mean someone worth $110k has a $100k mortgage? Or do you mean someone worth -$90k has $10k in assets and liabilities totalling $100k?

You can get a mortgage with as little as 3% down payment, so yes, I am referring to someone who has a $100K mortgage debt, a $100K house an $10K in other, misc assets like savings or investments. This person is leveraged 10X. I don't know for a fact billionaires don't leverage themselves 10X but I can't fathom why they would unless they're on r/WallStreetBets.

> No, the bankers are the ones who made the conscious decision. Good rhetorical judo tho.

Ok so a business sees their revenues go up 2%, and their costs go up 2%, and during annual comp review they say... "let's set the increase in salaries at 0% even though we know inflation is 2%" -- the bankers did that? Were they on the conference call? That's a lot of calls to schedule!

> Some of it is basically common knowledge, like poor people not having the collaterall, credit history, or social value required to access the same loans as billionaires. Some of it just seems like fundamental misunderstanding on your part, like your belief that all prices inflate at the same rate.

You introduced all of these things, not me, and you did so based on a misunderstanding of my point.

C'mon Quixote, put down the lance.

> I have at no point stated that. What I said is that inflation affects all debts equally.

So you do, at least, understand that a person with more debt benefits more than a person with less debt?

> Interest rate on loans is defined on "cost plus" basis, where "cost" is the treasury interest rate, and the "plus" is based on your default risk. However, the "cost" is the same for everyone no matter what.

So you are aware that poor people generally pay a premium for loans, based on their risk of default? And you see how that impacts their access to credit? And how this leads to wealthy people benefitting more?

> You can get a mortgage with as little as 3% down payment, so yes, I am referring to someone who has a $100K mortgage debt, a $100K house an $10K in other, misc assets like savings or investments.

That is the kind of person who may benefit from inflation, depending on their investment choices.

> So you do, at least, understand that a person with more debt benefits more than a person with less debt?

I believe I explicitly stated it benefits debtors over creditors. Poor folks are leveraged substantially more than rich folks, hence the disproportionate benefit.

Without inflation they'd be assessed the same interest rates, with the same risk premiums, but would not benefit from inflation so this is strictly worse, is it not?

> So you are aware that poor people generally pay a premium for loans, based on their risk of default? And you see how that impacts their access to credit? And how this leads to wealthy people benefitting more?

That has nothing to do with inflation which impacts the principal of issued loans.

> Poor folks are leveraged substantially more than rich folks, hence the disproportionate benefit.

This is false, rich folks have far more debt than poor people, not to mention access to lower prices for loans.

> Without inflation they'd be assessed the same interest rates, with the same risk premiums, but would not benefit from inflation so this is strictly worse, is it not?

You’re right that the rich, who hold vastly greater amounts of debt, would not benefit from the central bank depreciating their liabilities.

> That has nothing to do with inflation which impacts the principal of issued loans.

When the principal decreases by 2% per annum and the rich person pays 2% interest and the poor person oays %600 percent, the rich person gets free credit while the poor person pays ~600% per annum. Surely you can see that this is worse for the poor person, even before factoring in that the rich person gets capital gains from asset inflation while the poor person gets real decrease in wages.

> This is false, rich folks have far more debt than poor people ...

On a percentage basis?

[citation needed]

> When the principal decreases by 2% per annum and the rich person pays 2% interest and the poor person pays %600 percent, the rich person gets free credit while the poor person pays ~600% per annum. Surely you can see that this is worse for the poor person, even before factoring in that the rich person gets capital gains from asset inflation while the poor person gets real decrease in wages.

Inflation is a small part of the interest rate calculation. Even if inflation were 0% a rich person would pay 0% and a poor person 598%. You've achieved nothing.

> Surely you can see that this is worse for the poor person, even before factoring in that the rich person gets capital gains from asset inflation while the poor person gets real decrease in wages.

Wages have kept pace with inflation, and capital gains tax is a social/fiscal policy matter for Congress, not for Janet Yellen. Try again.

> Money isn't a long-term store of value, it never was

Yes, we all get your point: currency is not intended as a literal store of value. I think this is where the real misunderstanding lies. The good arguments against currency debasement are not about money's ability to "store value" but rather its ability to transmit information about value across time and space. These are arguably the same thing, but the more descriptive phrase makes it clear that the problem is not specifically that the unit of value corresponding to the currency "shrinks" over time, but that the processes used nowadays by monetary authorities to manage currencies severely distort the signals carried in that currency unit in ways that lead to economic waste and increasing inequality.

... severely distort the signals carried in that currency unit in ways that lead to economic waste and increasing inequality.

It just doesn't. Wealth and income inequality is a real problem but a social policy problem, not a monetary policy problem. Talk to Congress.

> Only because the wealthy benefit from depreciating currency.

Net debtors benefit from a depreciating currency, in first order effects. Beyond first order effects, a currency with gradual depreciation but low volatility benefits everyone. As everyone includes the rich, it is true that they benefit, but not especially true.

> the units depreciated because the oligarchs want workers’ wages to go down.

The alternative is not “employment at the same wages” when demand drops, it's “production cuts and unemployment, resulting in larger second order demand drop, resulting in more production cuts and unemployment, etc.” That this is generally worse for everyone including the working class, both as a whole and even many of the workers in the sector seeing the initial demand drop should be pretty easy to see.

Thanks, I am glad someone else actually has the energy to explain this.

> As everyone includes the rich, it is true that they benefit, but not especially true.

Asst holders benefit disproportionately, as do debtors. The people who benefit most have both assets and debt. These are wealthy people.

> The alternative is not “employment at the same wages” when demand drops, it's “production cuts and unemployment, resulting in larger second order demand drop, resulting in more production cuts and unemployment, etc.”

So by tricking people into taking less compensation for the same amount of work, we benefit how? If demand decreases then production should decrease, because less production is indicated.

> That this is generally worse for everyone including the working class, both as a whole and even many of the workers in the sector seeing the initial demand drop should be pretty easy to see.

No, I’m seeing the opposite. When the automobile replaced the horse-and-buggy, demand for buggy whips decreased as it should have. printing money so that the buggy whip makers didn’t notice that there was less demand for their product would have been a disservice

> people who benefit most have both assets and debt. These are wealthy people

Generally you have to have more assets than debt to be considered "wealthy." This is why the word "net" is important in the parent comment. And you are completely ignoring the second-order effects, which is that an economy with low, stable inflation is good for everyone. And if you are going to quibble "why is low, stable inflation good for everyone," then look at the deflationary spirals of the great depression (or any pre-1900 crash) and any hyperinflationary economy of your choosing.

> If demand decreases then production should decrease

Okay Chairman, have it your way. COVID hits, demand plummets, we do nothing to try to keep people in jobs or keep the financial system from collapsing. Less production is indicated!

> buggy whips

This is a total red herring and you know it. No one is talking about counter-cyclical monetary policy and implying it is being used to keep anachronistic firms in business.

> Generally you have to have more assets than debt to be considered "wealthy." This is why the word "net" is important in the parent comment.

I think you’re missing the point.

> you are completely ignoring the second-order effects

I’m sure I referred to them repeatedly.

> an economy with low, stable inflation is good for everyone

This is argument by assertion, which I have already responded above by explaining, in detail, how this is not the case.

> look at the deflationary spirals of the great depression (or any pre-1900 crash) and any hyperinflationary economy of your choosing.

You’ve helped me to show why an unstable currency is bad. You haven’t supported your assertion of why a depreciating currency is good for everyone.

> COVID hits, demand plummets, we do nothing to try to keep people in jobs or keep the financial system from collapsing. Less production is indicated!

Sounds good. Those pesky billionaires are going to be upset that we don’t continue to pump up their asset prices but whatever.

> No one is talking about counter-cyclical monetary policy and implying it is being used to keep anachronistic firms in business.

Why not? Why is it good to print money so unproductive workers don’t get laid off, but its bad to print money to keep unproductive firms from disappearing?

> Sounds good.

Aight chief I'm out. Glad we have agreed that 25% unemployment is a good thing. You sure are concerned about those working class people trying to feed their families! I am in awe of your superior economic knowledge and humanitarian instincts. It is unfortunate that the people running the central banks are such rascals, rigging the economy for the benefit of the ultra-wealthy, when you could be doing their job instead.

> printing money so that the buggy whip makers didn’t notice that there was less demand for their product would have been a disservice

lol, printing money wouldn't have changed anything there. If they made a -5% real return with no printing, and there's a 2% inflation rate, they'd have made a -3% notional return, or, and I believe this is true, a -5% real return. Unless it was handed directly to them, in which case we call this a subsidy not inflation.

You keep conflating units with what they represent. It might make your headache dissipate if you think of dollars as "vintage" year in which they were issued. A 2020 dollar is not the same as 2021 dollar, even though they're convertible 1:1.

Just as a 2006 vintage Krug isn't the same as a 2010 vintage Krug, a 2006 vintage dollar isn't the same as a 2010 vintage dollar.

> lol, printing money wouldn't have changed anything there. If they made a -5% real return with no printing, and there's a 2% inflation rate, they'd have made a -3% notional return, or, and I believe this is true, a -5% real return.

This makes no sense. You print money and spend it on buggy whips, they continue to make a positive return. Because you printed money and took up the slack demand.

> Just as a 2006 vintage Krug isn't the same as a 2010 vintage Krug, a 2006 vintage dollar isn't the same as a 2010 vintage dollar.

This doesn’t make sense either, in 2010 the 2006 dollar is worth the same as the 2010 dollar.

> This doesn’t make sense either, in 2010 the 2006 dollar is worth the same as the 2010 dollar.

No, it isn't. A 2006 dollar is worth ((1 + 0.02)^15) = $1.34 in 2021 dollars. A 2010 dollar is worth ((1 + 0.02)^11) = $1.24. Each reflects a slice of the GDP in the year of issue and if you'd exchanged it for assets in the year of issue like you were supposed to you'd have preserved that value. You chose to bring it forward into 2021 without investing it like you were supposed to. You willingly took the haircut. That's the only way they're worth the same - your forfeiture of time value.

You misunderstood my comment.

> if you'd exchanged it for assets in the year of issue like you were supposed to

like you were supposed to This is exactly how the central bank policy is set up for the wealthy.

> You willingly took the haircut.

Alas, most Americans (and all the poor ones) do not have the same access to investment opportunities as myself.

> like you were supposed to This is exactly how the central bank policy is set up for the wealthy.

The poor have no assets to invest.

> Alas, most Americans (and all the poor ones) do not have the same access to investment opportunities as myself.

Yes they do. If they have money, they have Robinhood. If they don't have money, inflation doesn't matter.

> The poor have no assets to invest.

They (or their households) have an income, which is paid in units that are constantly depreciating while the investments are increasing in nominal terms. Of course they have no assets, because central bank policies have priced all of the assets out of their reach.

> Yes they do. If they have money, they have Robinhood. If they don't have money, inflation doesn't matter.

They don’t have enough time after working and chores to investigate which assets to purchase on the stock market, which is why banks existed before the central bank destroyed the savings market.

> They don’t have enough time after working and chores to investigate which assets to purchase on the stock market, which is why banks existed before the central bank destroyed the savings market.

There's plenty of roboadvisors with no minimums like Betterment or Wealthfront. There's Acorns. There's all sorts of technology to solve this problem. Heck how much time does it take to hit "buy" on SPY in RH once a quarter? I'm pretty busy but somehow I find the time to day-trade /NQ futures.

What do you mean "destroyed the savings market" -- remember when interest rates were 12% poor people couldn't really afford much house. How much good is a savings account when you can't afford anything? I suspect they'd be more than willing to trade a 2% mortgage interest rate for having to download a second app on their phone.

> You print money and spend it on buggy whips, they continue to make a positive return

Sure, but no one is talking about combining general monetary expansion with targeted fiscal stimulus on the industries experiencing a drop in market demand.

(There might be good reason to do that to avoid capacity loss if you had a good reason to believe that it was a transitory loss in an industry where even with the buffering provided by inflation, production cuts would, absent fiscal intervention, be so severe as to result in abandonment/neglect/destruction of capital goods that would adversely effect an expected recovery, but that’s a far different issue than monetary inflation alone.)

> Asst holders benefit disproportionately

No, they don't. Clearly dollar-denominated asset holders lose by first order effects, though they might see reduced risk as second+-order effects. Non-dollar-denominated asset holders see no real gains as first-order effects, they only see them indirectly from the absence of production cuts and demand throughout the economy, but those are much smaller proportional benefits than the people who would be unemployed by those cuts face.

> So by tricking people into taking less compensation for the same amount of work, we benefit how?

We benefit because otherwise those jobs would be lost entirely, along with the associated production which is worse in first order terms, but because it both reduces output and contracts demand, has second-order effects that would result in more job losses and production cuts. If the workers individually prefer not to be employed than to be employed at reduced real wages, they of course can voluntarily choose not to work (which by contracting supply will drive up wages for the remaining workers.)

> If demand decreases then production should decrease, because less production is indicated.

Yes, naturally if demand decreases both market-clearing price and market-clearing quantity should decrease. Wage stickiness pushes that all into quantity and not price cuts, which is more disruptive than smaller quantity cuts with some price cuts (both for the produced goods and the labor to produce them.)

> When the automobile replaced the horse-and-buggy, demand for buggy whips decreased as it should have. printing money so that the buggy whip makers didn’t notice that there was less demand for their product would have been a disservice.

Inflation doesn't prevent manufacturers from noticing demand cuts, it just makes it more possible for them to cut prices as well as quantity in response to demand fluctuations, which—especially with transitory fluctuations, though this is true more generally, outside of a catastrophic drop to zero demand, where it has no effect either way—has less adverse knock-on effects.

> Clearly dollar-denominated asset holders lose by first order effects

I don’t think you understand how this works. There are more dollars chasing the same number of assets, the asset holders are standing still while the dollar holders are falling behind.

> We benefit because otherwise those jobs would be lost entirely

If those jobs are lost due to decreased demand, the null hypothesis is that they should be lost, because they are no longer required. Its fine for you to feel otherwise but that’s why you would argue in favor of your alternate hypothesis where, despite the decrease in demand, we somehow know better than all those consumers, and decide that keeping a few apparently useless jobs around is more important than all those workers having stable incomes.

> along with the associated production which is worse in first order terms, but because it both reduces output and contracts demand, has second-order effects that would result in more job losses and production cuts.

If people aren’t purchasing those goods and services its entirely possible that we don’t need them to continue to be produced and propping them up with inflation is a bad idea.

> If the workers individually prefer not to be employed than to be employed at reduced real wages, they of course can voluntarily choose not to work (which by contracting supply will drive up wages for the remaining workers.)

This would be a good argument for asking them to take a pay cut. Inflation is a bad answer to this because it doesn’t result in a predictable or easily measureable decrease in wages. Btw this also has implications for the decision to use such a coarse-grained means to affect the economy.

> Yes, naturally if demand decreases both market-clearing price and market-clearing quantity should decrease. Wage stickiness pushes that all into quantity and not price cuts, which is more disruptive than smaller quantity cuts with some price cuts (both for the produced goods and the labor to produce them.)

If wage stickiness is a bad thing, then perhaps a cultural change towards accepting some variability in wages due to market conditions is indicated. However, its not clear that wage stickiness is even a bad thing, and its not clear that the guys who manipulate policy in order to deceive workers about the real value of their wages are doing it for the workers’ own good.

> Inflation doesn't prevent manufacturers from noticing demand cuts,

It absolutely can, what do you think this whole discussion is about? If they didn’t inflate the money supply then businesses would notice decreased demand and fire some workers, thats what you said.

> it just makes it more possible for them to cut prices as well as quantity in response to demand fluctuations

Not necessarily, in fact by increasing the nominal price of inputs it can make it more difficult for businesses to even survive.

> It absolutely can

No, it can't.

> If they didn’t inflate the money supply then businesses would notice decreased demand and fire some workers, thats what you said.

No, it's not. They notice whether they are cutting real wages or cutting jobs (and the increase in general prices, which affects all inputs which the industry shares with industries not facing demand drops—including those segments of labor with mobility—assures that they notice even if the inflation means nominal market clearing price remains the same.) What inflation does is increase the range of alternatives they have to deal with the demand decline to include addressing some of it decreasing real wages in some areas, particularly jobs with low mobility, reducing the degree to which it is addressed by production cuts which cut jobs in the industry, cut orders to suppliers and force second-order and beyond job cuts, etc.

> in fact by increasing the nominal price of inputs it can make it more difficult for businesses to even survive.

It only has that effect if businesses have long-term fixed nominal price commitments made in ignorance of inflation, which is why central bank policies tend to focus on avoiding significant volatility as well as maintaining moderate positive inflation.

> That's your duty in a capitalist society - to pick winners by investment.

See, that, and well as your first point, are where the other person's philosophy and yours collide.

I daresay his point is that "It should not be my defacto requirement in society to buy stonks in order to not lose the wages I have duly earned".

You are saying "your obligation in society is to take the wages you earn and keep your money moving, rather than keeping it safely".

So buy gold. The point is that an inflationary fiat currency offers maximum flexibility by not forcing anyone into treating it as more than a medium of exchange. The OP is demanding the creation of a new class of thing, which is designed to preserve wealth, with no risk. Ok, pitch that. But there's many reasons why that isn't a good thing. Inability to react to shocks such as a global pandemic, generational wealth consolidation and so on are all reasons its a bad idea.

Many things people hate on such as wild value swings and boom/bust cycles were much worse on the gold standard. However, in a world where wages keep pace with inflation (they do) you can recreate the gold standard yourself by firing up Robinhood and buying GLD.

By pegging the currency to an arbitrary asset class you're forcing me to use your asset class. By leaving it un-backed, you're free to back your personal economy with whatever asset you like.

More freedom.

If the central bank implemented inflation targeting by simply handing out cash to everyone, I'd probably shrug. But the current system is a moral abomination and I won't be surprised when it collapses in another decade or two. Looking forward to seeing your comments on future HN economics posts as that process plays out.

"Moral abomination"? The fed controls interest rates. Lower interest rates are handed out to everyone. Credit card holders. Mortgage refinance. HELOC. Just who do you think is disproportionately benefitting in a way that's causing you to throw up the moral white flag? With sources please.

> The point is that an inflationary fiat currency offers maximum flexibility by not forcing anyone into treating it as more than a medium of exchange. The OP is demanding the creation of a new class of thing, which is designed to preserve wealth, with no risk.

Thank you for the complement but I didn't invent banking.

Seemingly misunderstood it though. It was never a risk-free return. Nobody that offers you 12% APY is offering you a risk-free return :) that's a good rule to live by.

I don't think it's just a matter of philosophy - I think a major problem is that modern macroeconomics has a number of counter-intuitive properties that do make sense, but only after studying it for a while and doing thought experiments. But because the system is complex and often counter-intuitive, people often over-estimate their ability to reason it out from first principles (especially common on HN, which is full of smart people but without any particular economic focus).

To give some examples of how it can be counter-intuitive (I'm not an expert, so hopefully this is all correct):

Unlike a household, if you look at the economy in total everyone can't save up money at the same time (unless more money is printed). Most of what people think of as money (checking accounts etc) is bank credit that was created by people taking out loans. In fact, savings and debt are basically two sides of the same coin - savings are forgoing current consumption for the future, and debt is a promise to forgo future consumption.

People can try to all save money (by reducing spending) at the same time, but since everyone saving at once isn't possible what actually happens is that reduced spending causes incomes to drop, and people have no more savings and less income.

It's easy to say things like it should be easy to save, inflation should be zero, interest rates should be high, etc. But there are certain mathematical limitations to what can happen. If most people have high savings (promises for future consumption), that's basically the other side of a debt (promises to forgo future consumption). Who should hold that debt? Should the government run a big deficit? There are similar issues with inflation / interest rates etc.

Unfortunately the discussion in some of the other comments here has gotten a bit heated. I'm sympathetic to how frustrating it must be to people with more formal economics training than me though - it seems like every economic discussion immediately devolves into to people (with supreme confidence) arguing against economics 101.

"anyone who relies on fixed payments denominated in dollars (retirees, pensioners, disabled persons, those on public assistance, etc.).

All those people are, or should be, index-linked. But they are a convenient human shield for the real culprits.

The people who actually rely on fixed incomes are those holding the debt assets that rot by inflation - ie bankers and rich people.

Inflation helps debt payers by transfers from debt holders. However it is the latter that have the political power.

Nobody else is affected by inflation. They are affected by the systemic lack of jobs induced by a central bank system that is overly tight to avoid inflation that never happens.

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