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Comment by chordalkeyboard | Hacker News Reader

> 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.

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> 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...

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