> Raising incomes to combat affordability problems is far better for everyone involved than lowering prices artificially.
This has been tried in many latam countries in the past 15-20years with Inflation expectations getting out of control as result
This has been tried in many latam countries in the past 15-20years with Inflation expectations getting out of control as result
To say it doesn't work using Latin American countries as an example, is like saying Russia already "tried" capitalism in the 90s. This kind of policy is so broad, widespread, and so often poorly implemented that it's impossible to use a single example as proof of ineffectiveness.
If you're looking for a positive example though, most people agree that the Scandinavian nations have done pretty well keeping wages on pace.
Asset prices (rich people's wealth) are fundamentally a percentage of outstanding debt.
Wages (the reward for labor) is fundamentally a percentage of GDP.
By having high inflation you change the balance between asset prices and wages, making labor worth a lot more than assets for a while. Kills your savings, especially the ones in government bonds and things like savings accounts, but it lowers your debt even more, as well as government debt.
Exactly what people have been clamoring for. It will change the "rich get richer" dynamic, at least for the large majority of wealthy people.
I'd love for the government to print a bunch of money eroding the value of my mortgage debt. I feel sorry for everyone who don't already own houses, because it'll push them even further out of their reach.
That's the recipe: directly print money, transfer it far and wide into society.
Or we could do QE again, and the rich will get 60-80% of the QE, and we'll be in even bigger trouble when governments are forced to pay it back a few years down the line.
> Asset prices (rich people's wealth) are fundamentally a percentage of outstanding debt.
I'm not being intentionally dense, I promise, but I genuinely can't understand how on Earth you came to this conclusion.
So when people say they own a million dollars, that would mean they own a million dollars on one side of this ledger. It means someone owes them a million dollars. It's a loan, in other words, just "the other side" of the loan.
What "value" does it represent? Well, the (equal) amounts on both sides of the central bank ledger represent the value of everything that can be owned. In a way, it's the number that defines what everything, in total, is worth.
So what happens when the government prints 10% of the total money outstanding (by creating a new central bank liability), gives it to itself, and passes that money to labor, one way or another (from increasing pensions to paying kindergarten teachers more, to building bridges, ...), what effectively happened?
1) "everything" just became worth 10% more, BUT prices can't immediately change because nobody would pay these prices on day 0.
2) importantly, no dollar amount on any loan changes. You still have a 500k mortgage, but your house now represents 550k in value (you can't sell it for any more than yesterday though at this point), if you work for the government you just got a raise that enables you to pay for a 550k mortgage, and if you work in the private sector the whole company will be screaming at the boss for a raise all at the same time. And unless they want all their people working for the government, they'll be giving this raise, too. Then they'll raise prices, of course, but that'll take more time.
3) that money ends up with people, assuming the government chooses it ends up with people, who slowly start using it, slowly bidding up the price of, say your house, over some period. This has generally been observed to in practice be about 1.6 years. But also slowly the price of everything will go up until supply and demand are back in balance. But then you do this every year for a while, at which point the period will reduce and it'll rebalance faster (because that's what everyone will be trying to cause)
In other words, the government suddenly owns effectively 10% of all assets, and gets to use that money on whoever it chooses, and after 1.6 years the money is back in the ownership economy. But during that 1.6 years whoever received this money has a 10% advantage over the asset owners.
What is the net result? A 10% wealth transfer from the "ownership economy" to the "productive economy" (assuming the government chooses reasonably), the reverse of what happens with low inflation. The more money you have, the worse the effect will be on you, and the closer you are part of the people who receive the printed money on day 0, the better it is for you. Properly executed, it's a redistribution from the rich to people.
(Note: 10% is extreme, though after QE it may turn out to be a necessity)