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Comment by bunderbunder | Hacker News Reader

In the US, at least, a bank would have a very hard time doing something this irresponsible. The FDIC would have noticed the problem and stepped in long before the situation could get this bad.

I'll cut off the inevitable reference to 2007 at the pass by pointing out that none of the big banks that got bailed out ever made it anywhere close to digging themselves into a hole as deep as Mt. Gox did. For example, the biggest bank failure in US history, Washington Mutual, went down with about $300bn in assets against $200bn in deposits. Creditors ended up getting wiped out, but deposits were safe.

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> In the US, at least, a bank would have a very hard time doing something this irresponsible.

Did you completely miss out the part where Goldman Sachs drafted gvt regulation to its advantage and conducted insider market manipulation that led to the 2008 crash ?

"Creditors ended up getting wiped out, but deposits were safe."

Deposits were safe, but all of society got kicked by inflation and increased unemployment. Of course, that only hurts poor people, so, win for the depositors!

Inflation from 2007 to 2012 was about 10% (total, not per year). Inflation from 2002 to 2007 was about 15%.

It's higher than that, because the CPI does a lot of adjustments to the offical figure. Moreover, your years are cherry-picked; there was a wave of deflation (that occurred in 2008-2009) as loans went though a cycle of defaults to clear out bad debt. Finally, the effects of top-down stimulus take a long time to propagate, especially since the current money multiplier for dollars is still quite low, and bank's lending activities have been relatively stagnant (roughly speaking, base currency went up, but debt expansion, which is what really counts, has not caught up yet because people are reluctant to go into debt - hence the popularity of debit cards vs. credit cards). Eventually as people start using debt to paper of catastrophes and emergencies, the overall indebtedness will increase, and the inflationary increase in the base currency will propagate into the debt burden, and we will have a sudden increase in inflation.

I personally think it's unlikely to be hyperinflationary, but it will be very uncomfortable, especially for poor and middle class.

But, perhaps i should not have used the past tense.

Inflation actually tends to benefit the poor in the long run, as it devalues debt. (By definition, the poor don't have a lot of savings and tend to be in debt). Hyperinflation of course causes problems for everyone, but that's not going to happen. That said, there's little reason to worry about out of control inflation for several years to come: these economies still have enormous under-utilized resources.

No. The poor are typically in debt on short-term scales (days, weeks) which does not benefit from inflation, and at rates (often double digits) which inflation does not mitigate.

The rich are typically in debt a lot, via leveraged investment ('trading on margin'), or, indirectly by things like leveraged ETFs, leveraged currency FX trading, etc, which enjoy very low, bank-level interest rates because it's done in bulk. Not to mention banks with direct access to low-interest loans, (as in bank corporations) which are not begging in the streets for alms (they get bailouts). These debts that the rich enjoy benefit greatly from inflationary devaluation of nominal prices.

Moreover, the investment activity of the rich tends to benefit from inflation.

I think you're badly mistaken.

While I'm sure there are some rich that are heavily leveraged, the majority are not leveraged that highly relative to their asset base. This has been shown in most available statistics on household wealth. For example:

http://www.levyinstitute.org/pubs/wp_589.pdf

In particular the debt-equity ratio of the top 1% (>$8.2m net worth) is 2.8% ; the next 19% (> $473k < $8.2m) is 12.1%, and the middle three quintiles ($200 dollars-$480k) is is 61.1%.

Moreover, the rich representatives in press & politics (WSJ editorial page, Forbes, the GOP, etc.) have been clamouring to raise interest rates for the past 5 years out of inflation fears... for what reason? To benefit the poor?

the paper doesn't account for indirect leverage, that I wrote about in my post, and also, banks writ large are basically leveraged institutions.

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