Speaking as a 38-year-old white male libertarian, I completely agree. As the economy grows, the total value of transaction grows, which means there’s more need for money to do the transactions. If the money supply stays fixed, that demand isn’t met. Supply and demand 101 says the price of money goes up and the amount of money used goes down. You’re taking something that doesn’t need to be scarce (green paper), and creating artificial scarcity, which hurts the economy and generates a windfall for holders of money.
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I agree with the rest of your post but would point out that monetary policy affects literally every single one of us every single day. If there is any single part of government economic policy one would choose to obsess over, whether as an investor or a concerned citizen, the way that central banks manage the economy with their policy levers is going to be very near the top of the list.
The rest of your post is accurate and really gets at the “YouTube rabbit hole” end of monetary policy “analysis”. If you set out learn about monetary policy by watching whatever YouTube videos about monetary policy are recommended by people that love Bitcoin and Jordan Peterson, yeah you’re gonna have a bad time. But there are actual central bank publications on this stuff, you could literally spend all your free time for months learning about it from actual experts if you were so inclined.
so the Fed announces it is tapering bond purchases and will make three rate hikes next year, market shoots up because the bad news was obviously already priced in.
Additional data point. Most economics is pretty garbage.
I’m doing an econ course for my masters. The textbook is full of provably false statements, without even an attempt to caveat them. Just pretending as if behavioural economics never happened.
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The current environment is great for those in a position to hold ever-rising assets (stocks, RE, cryptos, etc.), but what about the huge segment of the population who lives paycheck to paycheck and can’t afford exposure to these things? Their savings (if they have any) and purchasing power are being eroded by the growing money supply year after year.
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The “inflation hurts poors the most” thing is just not true, it’s a garbage libertarian bro talking point. Wages rise with inflation and poors spend their money instantly. The people who suffer are savers with cash.
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It’s more complicated than that. People with a lot of debt can benefit from inflation.
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I get what you’re saying, but its more intuitive to say that debtors benefit when their incomes go up, even if there’s a matching increase in inflation. If you know your income is going to go up by 5% next year, you’d rather inflation stay low, even if you have debt.
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The poor not being able to save or invest because their income barely covers (or doesn’t fully cover) their basic expenses (and we all know most Americans are deep in debt to boot) is not really a strong argument that inflation doesn’t hurt the poor.
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futures rocketing again. Rates go down stonks go up, rates go up stonks go up
Poor people are in debt. Borrowers are definitely helped by inflation. Also the sort of things that lower middle class people own tend to go up with inflation (mainly talking about houses).
Also inflation drives constant reevaluation of pay, and that’s not bad for labor.
Must be nice to have a lower middle class that owns houses. home ownership among low income people in Australia is miniscule.
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They own shitty houses in shitty places. This doesn’t apply to cities. The poor in cities owe significant amounts of money and the value of that debt is lowered by inflation.
Also in AUS you guys have something approximating living wages. I wouldn’t call us lucky on that.
I’m in trucking and we can pass on our costs. My debts lower in value. My investment porfolio is beating inflation. The house I bought this year is already up by more than inflation, but inflation is the reason it’s going up as fast as it is.
Honestly every single part of my financial life benefits from inflation. This is largely also true for every poor person I grew up with. Lots of quitting jobs and getting new better jobs going on… and everyone has student loans and consumer debt that is being devalued.
Inflation is bad for old people with retirement savings. The millennials need inflation to stay like this for as long as humanly possible. This inflation is a direct and much needed wealth transfer from the Boomers to us.
I don’t give a single shit about macroeconomic trends that don’t benefit the Boomers. God forbid one thing doesn’t work out in their favor.
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I picked neutral because there are offsetting factors for me. Like a lot of people the biggest item in my personal financial situation is a real estate asset whose value is reduced by a mortgage. In an inflationary economic environment, I would expect that the price I could sell my house for will increase with (at least) inflation, but the debt I have would just wear away with inflation. So the real value of my home net of mortgage will go up. This benefit is slightly offset because higher daily cost of living will slow down the rate at which we pay the debt down over time.
My second biggest factor in my financial situation is assets accumulated in things like my employer pension plan. The impact of inflation on investments is not really knowable. I am probably more worried that the stock market is overbought by investors that have never experienced anything but double digit year over year returns. That worries me more than inflation.
An important factor for me personally is also that my wife and I have jobs that pay well. So if our grocery bill pops by 10% we notice it, but it’s not like we will have a hard time putting food on the table. This is what my mother in law calls “White People Problems”. So in this sense inflation is “bad” for me personally because I guess I will have less short term luxury consumption, but it’s nothing like the way that inflation hurts people living paycheck to paycheck. There are plenty of people in Ontario where a quick rise in food and heating costs leave them deciding at the end of the month if they want food or heat in Canada in February. This actually happened to me when I was a kid, we could only afford to heat the trailer we lived in for a few hours per day in the winter. Not a good time.
The other major unknown is how wages respond to inflation. My employer is notoriously stingy with salary increases, even in a normal inflationary environment I would have to kick up a fuss to get salary increases in line with inflation. So there is a chance that a sustained inflationary period would meaningfully erode my effective salary, which would have a big impact on my overall wealth. I have 20 years to retirement in all likelihood so my remaining “human capital” is still a big factor in my economic situation. My wife’s wages are also capped at 1% annual increases by law right now (she’s in the public sector) so that cap is even more impactful if inflation is high.
Anyway, very complex! But inflation definitely isn’t keeping me up at night, my household is two professionals making decent money with a home. Our whole society is designed to sustain our standard of living.
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bad. I don’t have much debt and I’m hopefully retiring in the next few years.
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We really don’t … Rent/housing costs are approaching 40% of wages lol. In Melbourne or Sydney at least.
I have no idea, not something I really think about.
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So I should buy the max I-Bonds at the end of the month then the max again in January, right?
Related question to recent discussions, how does USD being the global reserve currency impact the effect (/concerns with the) effect of inflation in the US compared to the inflation of other currencies in those countries? Does it matter at all?