[hsk]

One aspect of inflation is that it is a tax on people who choose to hoard their money. Because inflation naturally makes every dollar worth less and less over time, you are forced to either spend it now or invest it somewhere that grows with inflation. As a result, money is actually utilized instead of sitting in a bank account.

Thus, I think the idea that a dollar saved today can buy roughly the same amount of stuff in a decade is actually bad, because in a world where that's likely, that dollar was probably sitting useless in someone's purse for a decade.

Inflation, in my opinion, actually does the opposite of what you suggest -- because it encourages lending and investing in order to beat inflation, money is actually put to use for longer term projects such as infrastructure that can last years and years.

[hga]

As a result, money is actually utilized instead of sitting in a bank account.

Because we all know banks put all the currency they receive in huge vaults filled with paper $100 bills, instead of, oh, lending it out (several times over one way or another).

Unless you're converting it all to gold, or stuffing it under a mattress, your savings are in institutions like banks which are not a sink where the velocity of your money goes to zero, outside of economic messes where they aren't willing to lend, or people are afraid to borrow. And your being encouraged to spend your money doesn't seem to help those situations.

[nshepperd]

A piggy bank would have been a better example. Anyway, it's not an argument against inflation: the reason putting your money in a bank account is a good idea today is (among other things) because they do invest it to stave off inflation. So inflation doesn't preclude saving (as in savings accounts), it just makes sure you save in better ways, like storing it in a bank that does lending.

[msandford]

Right now I earn less than a percent while inflation is definitely higher than a percent. Where is my real return on my savings?

[saalweachter]

If you are earning less than a percent, you are probably paying for liquidity.

Inflation is currently bouncing between around 1.6% and 2% (but mostly towards the 1.6%). A 3 year CD at a decent bank is currently paying around 1.6%; a 5 year CD is paying around 2%. So if you're willing to commit to a 5 year deposit, you will probably beat inflation and realize a small, real return. Even an interesting-bearing checking account (with a sufficient balance...) pays close to 1.6%.

Granted, it's not the glorious 5%+ returns of yesteryear, but then, we're in a savings glut.

[msandford]

> Granted, it's not the glorious 5%+ returns of yesteryear, but then, we're in a savings glut.

That's a nonsensical statement when the central bank is fully in control of the money supply, and thus, the interest rate.

That's like saying "well my computer has a billion copies of funny cat gifs on it, so there's a funny cat gif glut". It doesn't make any sense. You control how many copies of funny cat gifs are on your computer. If there are too many, it's because you made too many copies. If there are two few, it's because you made too few. Pretending that market action had anything to do with something that you are ultimately in control of makes zero sense.

The interest rate is low (or zero) because the central bank decided it should be, not because all the people in the world collectively don't have any real preference for a dollar today versus a dollar tomorrow.

[saalweachter]

The interest rate / inflation is largely low because the central banks are trying to keep it low / not trying to raise it.

The return from consumer savings accounts being near inflation / a near-zero real rate of return is because of the savings glut.

The two are related but not the same thing.

[nshepperd]

I make 3.5% on my (AUD) savings account while inflation is currently <2%. Maybe you're just getting screwed?

[robryan]

This is by no means the norm though, pretty much the best rate on offer currently (excluding things like limited time bonus interest).

Australia also still has a 2% official rate vs near 0 in the US.

[Dylan16807]

In the bank's pocket.

[hga]

Amplifying, the bank is also spending money to service your account. There's also the issue of how much your money is worth to the bank: demand deposits where it can all be withdrawn without notice are worth less than forms which lock it up for a while.

[msandford]

> Because we all know banks put all the currency they receive in huge vaults filled with paper $100 bills, instead of, oh, lending it out (several times over one way or another).

Right?! Every bank vault is just huge piles of gold bars and ornery old men counting and recounting the money, hoarding it up and never loaning it out.

[msandford]

So everyone should live paycheck to paycheck and thus keep money circulating in the economy more rather than "hoarded" in checking accounts to absorb shocks like big car repair bills and stuff like that?

I think the idea that a dollar today buys just as much in a decade IN NO WAY precludes people from investing their money to earn a return. It just eliminates the stupidity tax that some people pay for not understanding how things work.

In a non-inflationary environment nearly all people would still invest their money and put it to work. It's just that they wouldn't be taxed for not doing so.

Inflation doesn't encourage lending, it encourages borrowing. It's smart to pay back with dollars that are worth not as much as the dollars you borrow. Inflation actually discourages lending because you now have to find borrowers who can pay you back higher than the interest rate.

Of course, all this is predicated on a real market in interest rates which we don't have in the US because the Fed sets the rate through various means.

[Dylan16807]

You don't need more than a year's buffer in a checking account, and target inflation is insignificant at the timescale of a year. It only discourages long-term uninvested money.

[msandford]

If a year's buffer is 20k (rent, utilities, car payments, insurance, etc can total $1500/mo pretty easily) then 2% inflation (and basically zero interest) means that this buffer costs me $400 a year, or over $30/mo. That's a non-trivial carrying cost, $30/mo can buy me substantial, actual real things.

I might not care too much if it was $0.50 or $1 per month. But quantitative differences eventually become qualitative ones, and at this point it's not just some tiny abstract amount of money, it's real consumption that a person has to forego every month (or day!) for the sake of not getting financially ruined the first time a big unexpected expense comes up.