[colanderman]

Who cares that the dollar gradually declines in value? Only fools literally invest long-term in the dollar itself (the "under the mattress" approach). And if you're investing in any productive asset of actual value, inflation doesn't matter. (I can understand being leery of non-inflation-adjusted bonds.)

All that really matters is that the dollar doesn't significantly lose value between payday and tax time – which by definition, it doesn't, since tax rates are fixed in dollars a year ahead of time anyway.

I won't bother to argue the virtues of inflation with you, since it seems clear you've made up your mind about that "propaganda". But to claim that controlled inflation is inherently a "bad" thing – for no reason other than that it causes a thing with no inherent value to decrease in perceived value – belies a misunderstanding of value.

[skookumchuck]

> Who cares that the dollar gradually declines in value?

Anyone who holds a dollar in their hands. Anyone who invests in assets that are taxed on the inflationary "gains" in value. Anyone who has to wait months/years for a raise to catch up with the intervening inflation. Anyone on a fixed income. Anyone who's inflation rise in wages gets taxed at their highest marginal tax bracket, or even pushes them into a higher bracket.

[tobmlt]

The ill which inflation brings does not manifest itself in the short run. Inflation is a hidden transfer of wealth from everyone to first receivers, and first users of the new money. When the money is loaned into existance, the first recipients of the new money get to make purchases based on the old price point. By the time the money spreads throughout the system to everyone else, it manifests as mere (generalized) price increase. This is a slow and steady siphon which in practical effect takes wealth from the "have nots" and gives it to the "haves".

To argue pro inflation based only on the short run view is missing the point.

[colanderman]

> Inflation is a hidden transfer of wealth from everyone to first receivers, and first users of the new money.

It's funny, that's exactly what I was going to say about deflation. I hear Mr. Nakamoto is worth a lot these days.

The rest of your argument doesn't make sense to me, as the only effect inflation has on anyone is the price increase in a good between the time you receive the money and the time you spend it. Not the price increase since the money first came into existence. It doesn't matter when I get money, so long (a) I am paid according to the current worth of the currency (i.e., in real terms) and (b) as I spend (or invest) it quickly.

I mentioned in another comment that inflation does have the negative effect of masking wage stagnation, which causes exactly condition (a) above to be violated. This is ultimately a problem with people's understanding of money. It would be great if employers were forced to announce a lack of yearly pay increase as a pay cut in real terms.

Condition (b) on the other hand. That's more a problem for the wealthy. Personally (as an upper-middle class tech worker) I'd love it if I could just shove my savings under a mattress and have it increase in value. It's those living paycheck to paycheck – which, if I recall correctly, is the vast majority of Americans – who don't have to worry about spending their cash before inflation gets to it.

[tobmlt]

About bitcoin I would hazard to say that different assets change in value for different reasons... Bitcoin is a mostly speculative vehicle, right now, and goes up and down according to expectations. I want to stay away from it to avoid muddying the waters of the discussion but I will say that I don't think bitcoin in and of itself is exploitative, and Nakamoto is worth a lot because he had an idea that resonated with a lot of people who had various related ideas about it. But what do I know, and I don't have a dog in that fight. (I assume a lot of people have a lot of strong opinions about bitcoin, and I don't really have time to think about it)

I would rather talk about our apparently opposing perspectives on inflation as I think that's the interesting bit. (I think our perspectives are only different in that one looks at things on a short small tempro/local human scale, and the other is more economy wide/slow moving in view - and one needs both)

> the only effect inflation has on anyone is the price increase in a good between the time you receive the money and the time you spend it. Not the price increase since the money first came into existence. It doesn't matter when I get money, so long (a) I am paid according to the current worth of the currency (i.e., in real terms) and (b) as I spend (or invest) it quickly.

I claim that there is another effect that is only visible when looking at large scales - of both people and time. What you claim is true when looking only at an individual actor, or some small scale. There, sure, an individual can receive and spend money and generally get equal to what one gives for things. This is the short term perspective on inflation. What I claim is true only shows up when looking at the economy more holistically, and over time.

Let's say that I am a government defense contractor. Let's say that The government loans into existence a huge sum of money and promptly disburses it to me to pay for some new defense widget. Meanwhile, the rest of the economy is buying and selling stuff at the old price point, oblivious to this new cash influx. (I am ignoring expectations at the moment - but I do not intend to always ignore them! --spoiler, I will just claim that they don't entirely spoil my defense contracting party)

I can merrily build a widget army, inking large contracts at the present price point, which has not yet increased in response to this influx of cash (since I am holding all of it). The difference in price, between what I pay and what stuff will be worth once the cash is entirely diffused, amounts to a subsidy paid to me, in the amount that inflation will devalue the currency once it has fully circulated. I experience the benefit in that I have more wealth, encapsulated within the stuff I just bought, than someone down the line could purchase with the same amount of cash. So the next contractor down the line benefits a little less than me, so on and so forth until the money trickles down to everyone, and they just see a general rise in prices. The fundamental mechanism is that I get to buy at the old price point, while in fact already experiencing the increase in supply of money. If money distributed equally, I would see a fair price. Instead, I see an artificially low price, given the true supply of money now.

I claim that this subsidy to me really has made "the little people" a tiny bit poorer, and me a little bit richer. (and that this is a machine running day and night for years on end... )

Now expectations - here is where the objections to "my" theory hold their ground. It is claimed that because the various contractors down the line expect general inflation they can price it into their contracts, they can charge me a bit more than the current price level would suggest is right, due to expected changes in the value of money relative to their widget components from now and delivery time.

People make such forecasts all the time. Forecasting is difficult. The economy swings on the actions of the fed.. The fed knows this... and so on. I can't fully answer this. The trail of logic runs cold. Who is winning the expectation battle? Who is getting rich?

My great forecast/bet/wager, (which I cannot prove!) is that even with rational expectations of inflation, people in power have found it useful to continue to inflate to pay their cronies, to continue to enrich themselves year in and out via this mechanism.

I suspect this comes back around to your condition (a) violation above - people's understanding of money, sometimes predicated on faith in things like rational expectations, sometimes predicated on flat out not "getting" that pay stagnation is pay decrease, is the final underlying driver that causes rational expectations to loose out, and "my" defense contracting pseudo self to "win" out.

I hope I didn't come off rude. If I did I sincerely apologize. I probably did. I probably came off like a long winded ass. Again I am sorry. Lots of things going on at the moment. The short of it is that it might take me a while to get back to you tonight should you read this monstrous wall of text but I will do my best.

Cheers

[psyc]

In this context, Nakamoto would be a first hodler, which doesn't contradict the parent comment.

[freejulian]

People want to store the value they’ve earned. If you don’t provide that functionality in your currency people will simply find an alternative. Today people use real estate to park their money. Personally I’d rather money provide that store of value.

[colanderman]

You're always free to buy gold with your money, if you think that's a better store of value. I don't think the government cares.

(Personally I invest in productive assets and bettering my standard of living, but to each their own.)

[coconutrandom]

https://en.wikipedia.org/wiki/Executive_Order_6102

"..forbade the hoarding 'of gold or silver coin or bullion or currency', under penalty of $10,000 and/or up to five to ten years imprisonment. The main rationale behind the order was actually to remove the constraint on the Federal Reserve which prevented it from increasing the money supply during the depression"

https://en.wikipedia.org/wiki/The_Gold_(Control)_Act,_1968

"Desai finally introduced the Gold Control Act, on 24 August 1968, which prohibited citizens from owning gold in the form of bars and coins. All existing holding of gold coins and bars had to be converted to jewellery and declared to the authorities. Goldsmiths were not allowed to own more than 100 gms of gold."

[verylittlemeat]

I don't quite see your point both of those pieces of legislation were repealed 3+ decades ago.

[nkurz]

Presumably he's pointing out that colanderman's use of "always" in the phrase "always free to buy gold" is suspect. A better word might be "currently". Currently, one can buy gold freely in most countries. In the 1930's this was not the case in the US. As recently as the 1960's this was not the case in India. Investors in gold should probably be aware of these precedents.

[freejulian]

As I said, if you're wealthy, you buy real estate to park your wealth. If you're poor, you just watch your savings wither away. Heck of a system you're supporting.

[colanderman]

Poor people don't have savings.

(If they do, it's in a 401k, which is a productive asset and not tied to the whims of fiat currency.)

Poor people have debt. (Actually, I think most people in the US have net debt. (EDIT: Actually it's 20%; 30% if you're a minority [1].)) Inflation is good if you have net debt. It means the principal of your debt decreases in real terms each year.

I keep bringing up gold because this whole thread is about metal-backed currencies. Poor people can – and do – buy gold just as easily as rich people can. Pawn shops are rife with the stuff. The problem isn't that they must "watch their savings wither". It's that they don't have savings; they have debt.

[1] https://www.marketwatch.com/story/one-in-five-american-house...

[ianai]

Let’s also not forget the tie between inflation and GDP. It’s pretty hard to grow an economy if you literally have to dig new currency out of a mine and certify its quality before adding it to the economy. There are very real deflationary pressures from the mere machinations of such a currency.

[skookumchuck]

The way free banking works is money is created to match the increase in asset value. There is no net inflation, but the money supply rises in concert with the value in the economy. The amount of metal does not need to increase.

[freejulian]

> Poor people don't have savings.

What sort of nonsense is that? A lot of people don't have savings, sure, but there's also a lot of working class individuals who are financially responsible enough to save.

> If they do, it's in a 401k

Exactly my point -- the only way to save money is to risk handing it over to a corporation and crossing your fingers. Never mind that the general advice is not to invest money you plan on needing within the next 6 years.

> Inflation is good if you have net debt.

Not when the interest rate on your debt is higher than the rate of inflation.

You've done a sad job making any case at all for inflation.

[colanderman]

> [inflation is not good] when the interest rate on your debt is higher than the rate of inflation.

Yes, it's still good. It still decreases the real value of your principal. Deflation does the opposite.

[ianai]

Real estate is not the clear asset you assume it to be. RE gets taxed regardless of whether it produces revenue or not. Ie simply holding RE is costly. Further, RE values rely on externalities and (if the land is improved with buildings) maintence and repair costs. It’s also highly illiquid.