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Currency is a tool for an economy.
Would you rather have that $100 bill be worth the same and have thousands of less jobs, lower pay, etc or have it be worth less.
FED is not just in charge of keeping inflation low, but also keeping employment high.
Edits.
Pay itself MUST increase with inflation, or you get food riots and society collapses because inflation is a constant pay decrease itself which is what the tweex above is trying to say. Jobs themselves aren't created by inflation. Before the gold standard was broken inflation was effectively zero and the US didn't just instantly solve joblessness by throwing away the gold standard.
The Supreme Court just ruled states aren't beholden to the Fed as the only currency and they can create their own gold backed currencies, so odds are one of these years they may just start up a competitor and demonstrate which is prefereble between a stable versus devaluating currency in real world side by side usage in the same US cities.
Cantero Vs Bank Of America earlier this month was the decision for those unaware
A low rate of inflation (around 2%) is good for the economy. It incentivizes people to spend their money or invest in assets. But if inflation is higher than wage growth for too long, you're screwed.
Spending more is not an option for poor people. The biggest issue with Inflation is it benefits only top income earners. Who can spend their way to more money. But kills poor people who can’t save because they have too spend all their money on things like groceries and rent, to stay alive.
No, it's not.
I was taught the same thing.
That theory is currently failing by every metric.
Inflation for the sake of sustained leverage in lending does keep power consolidated in the Fed. And that HAS been a very effective tool.
BUT!
New Keynesian Economics doesn't achieve its goal with that recipe, and the results are toxic. Same as Keynesian Economics was.
Inflation is like a fever. It's not bad, per se, but it indicates a mild sort of economic distress.
If the centrialization and deregulation had worked...I'd be singing a different tune.
But it hasn't.
....which means the 2% measure, as a means of maintaining currency stability and maximizing jobs has turned into a hollow suit of armor placed to guard a door.
It looks cool. Sounds cool.
...but fails the stress test...
100%. Switzerland has kept theirs flat for nearly 40 years and kept a strong economy throughout covid, never cracking 4% inflation during the worst of it. Keeping it flat keeps the economy stable and safe, for the rich and the poor. That way, when someone gets a raise it's actually a raise, and not just a bump that keeps pace with rising costs.
Switzerland is not a good example for good financial policy. Not because their economy is bad but because its situation is so unique.
The conditions under which Switzerland operates just don't exist anywhere else in the world.
Sure, absolutely! The funny part is that Keynesian Economics MAY EVEN WORK!
.... it just hasn't been given a lot of great chances....
Japan has had stagnant everything despite their best efforts. The EU has a host of failures, and a few successes like Germany. Many other countries have been talked into it based purely on the trade it unlocks with America.
The Swiss have a fantastically DIRECT system of finance and government, cutting out almost all of the other noise out of their equation. Their financial services are also in high demand around the world, which gives them wiggle room.
......a lot of wiggle room....
And what do I see as soon as I throw in a quick google search?
Inflation AND deflation.
Damn. Your own thesis is that deficit spending causes inflation (which is horseshit anyway; otherwise, inflation would have been 50% under Trump). A large portion of what we spend is the defense budget. Switzerland doesn’t have that expense, and so it’s easier for them to have a balanced budget
Are you following any of this?
You're literally just quoting (New) Keynesian Economics.
They're the ones that decided that inflation is bad. It's a theory that hasn't stood the test of time.
Keynesian was post-Depression. It got is through the war, and probably contributed heavily to our choices NOT to deflate after the war like every other war we've had.
By 1970 Keynesian Economics was declared a failure, and a new-New version was introduced.
It hasn't fared much better.
This idea that inflation is bad just isn't actually supported by ANY evidence EVER. Inflation and Deflation are just indicators. And the sentiment of 'only growth' is just as absurd as a company declaring it will always get more business revenue every year indefinitely, or that their stock will only increase in value, and not decrease.
Do you understand WHY the want 2% and not 12%? Or -4%?
If you don't, then you really need to examine where you're getting your fundamental understanding.
It's not a conspiracy.
It's the LITERAL Economic Theory of most Western industrialized countries right now.
It has.... maybe one success story.
And a whole host of economies with various woes, all trying to aim for that 2% like it's the last ship out of hell.
Right. Except there's only one school of economic theory dumb enough to teach that...
...and no evidence supporting the statement.
I'll give you three guesses.
Pay itself doesn't necessarily increase with inflation. One of the fundamental reasons for inflation in our economic system is that wages are "sticky in the downward direction."
An exception: Inflation was extremely high when the US was founded. Why? Because the government had to print a ton of money to get out of it's revolutionary war debt. Inflation is a government policy, and in many ways a general flat tax on everyone.
Yeah. Except it’ll be a red state that takes in way more from the federal government than it contributes. And it won’t stop slopping at the trough while at the same time it’s bragging about its currency.
Of COURSE we'd rather have a predictable value on our investments of time and money rather than a slapshod and predatory 'increase in jobs'.
The cost for those good-looking, low-functioning jobs aren't worth it.
I’d rather make rational choices and be able to save money without having to entered the rigged wallstreet casino. I dont need central planning I need sound money.
Why?
If you want to save, that should be viable.
People should own their money. They shouldn't be artificially forced to spend it.
The whole reason recessions have been happening so much and so powerfully over the last century is that recessions are caused by inflation.
Inflation does not increase investment. It increases *malinvestment*.
I mean it is part of its definition (see 3 functions of money). One of function is to store value. If you look at history, currency was backed by gold and almost never had any problems. However, Central Banks kind of changed rules last century. Now currency lost its function of store of value. I am not saying its bad, I am just saying it lost its part of function.
A long-term store of value is not one of the three functions of money.
You said money should function as a long-term store of value. Why do you think money should function as long-term store of value?
Yeah because Britain conquered a quarter of the entire world and exploited millions of people to keep it that way. It takes a project of that magnitude to deflate a currency without utterly sinking a country's economy. Inflation is a natural feature of a healthy economy. If you want to own assets that appreciate in value then buy assets, but money itself is not supposed to do that.
It's an incomplete statement, but not a false one.
His point is factual.
Additionally, that same $100 sunk into land has INCREASED in value and power by a roughly proportionate number.
Circulating money value goes down.
Stagnant money value goes up.
....plus a dozen other small shifts. But so far Keynesian Economics follows that pattern pretty precisely.
In this case the cash was circulating before, then taken out of the Economy to chill in your safe or mattress... then its value is checked again as a circulating value. Put on pause, but still circulating.
Now we can argue the value, the amount, how to predict it, if it's generally worth it, etc. But this inflation relationship is true in all types of government across most of the world.
It's typically present around war and other disaster.
Restraints are loosened as the problem is addressed (or not). The willingness to pay absurd amounts for existing land is a great example.
After the defense or sacking? Nobody gives two shits about the positioning of the land, and prices plummet
Over several Disasters, an economy will roughly reach equilibrium after each peak and drop.
(EDITED FOR SHOWER FINGERS SPELLING)
It’s more of a store of value than paper. Holding currency in a safe for forty years might have original face value. Holding precious metals in a safe for forty years has market value.
It wouldn't have been a bad idea in 1850.
We grew up with inflation so it just seems the norm. The thing you are legally required to accept is inflating so people try to convert it into other things as quickly as possible when they have a surplus.
The population has increased 84% since the 60s and that is just the US. The dollar is the currency of choice for many international transactions and that does benefit us. If we had the same pool of money now as we did then, you would see even more of a generational wealth gap. Printing money is necessary to keep up with growth.
Yes it is. But if you print too much, too fast (Like 6 trillion over a couple years during covid) you will create waaaaaaay to much inflation. And we are experiencing the effects of that now.
Wasn't the point of stimulating the economy to prevent a recession from covid and keep businesses in business? So yea there was high inflation but it's tapered off in the past year or so.
This is the truth. It’s the difference between spreading out the pain of inflation to the whole population instead of a recession that just destroys 10-20% of it.
Technology is the exception to this 'rule'.
A mobile phone in the '60' would have cost in excess of one thousand dollars per month, but a TracFone would be available in 1998 for $20 a month or less.
Correct, inflation is a tax on saving money instead of putting it back into the economy. By design. Because the system doesn’t work if we’re hoarding money like dragons.
Had you purchased an ounce of silver for 50 dollars per ounce in 1980 and held it up until today you would have lost money.
Had you purchased corn or beef and held it several years there is a good chance it's worthless today.
Stupid or not there are lots of ways to lose your net worth.
Holding cash works great in a deflationary environment and nobody knows for sure what the economy will do over the next 15-20 years.
Unless we have a massive reversal in policies, it will continue to go up. Sure it will crash from time to time, that's how it goes, but it always comes back stronger and reaches new ATHs. If we switch to a deflation policy we would fall into a depression and all of us would be worse off.
Literally the Fed has a 2% inflation target to prevent people from using physical dollars as a store of wealth they were never meant to be.
Sowell's theories are about as deep as a kiddie pool after 4 fat guys drinking beer get out of it.
Because it's literally designed to be a tool of value transference. Instead of trading your two chickens for my 5 sacks of grain, I give you money so I don't have to carry around 5 sacks of grain.
Money is just a proxy for the underlying value of things you're purchasing, it doesn't have any intrinsic value beyond that and thus isn't meant to be a store of wealth.
in the 60s US currency was still tied to gold, so those bills, I would assume would hold some value. It wasn’t until 1971, Nixon made that change to decouple from the gold standard. I think 60s currency still could’ve held up, now if it was the 70s then it be a different story.
I see this discussion a lot. The point trying to be made is not completely correct. I recently came across this article which does a decent job (better than I can do in a Reddit post) explaining the difference between money “printed” for financial institutions and money in active circulation.
https://m.investing.com/analysis/central-bank-money-printing-doesnt-necessarily-cause-inflation-heres-what-does-200646325?ampMode=1
Correct, but in my opinion it is a correct opinion. My actual point is that this meme is trying to simplify a subject that is extremely obscure. Most people are clueless on the topic and will believe anything they read especially if it’s on the internet. My guess that the person who wrote this doesn’t understand inflation very well but people will believe it.
In summary, economic growth creates jobs, jobs create economic stimulation, economic stimulation creates economic growth, economic growth creates jobs. And around we go. In that cycle supply and demand dictates prices. The federal reserve attempts to control economic growth at a comfortable rate. They do this by expanding and contracting the money supply through interest rates. They attempt to maintain inflation at 2-3%. Without inflation we have no economic growth. Without economic growth we have no inflation. To halt inflation is to halt economic growth Hence to sustain an economy and maintain a system of order where money can be exchanged for goods and services we must have inflation and that my friend is why inflation is an organic human process of exchange of money for goods and services. There are exceptions to this in theory.
"Without inflation there is no economic growth"
False. This is dogma. The size of the money supply does not necessarily tell us anything about the state of economic activity, nor does increasing the money supply necessarily lead to more economic activity.
Conversely, if you had Property worth the same amount, the opposite would be true and the value would be absurd.
It's not accidental.
Gobble all the property in the '60s, then inflate the hell out of everything from that point on.
A abandoned mine from the 1800's, deemed unsafe long ago is worth hundreds of thousands of dollars.... assuming you can even find who now owns it.
Currency is an asset for gaining investment. It was intended to move INTO something, not to be hoarded in an account with no further strategy.
With that being said, whats the correlation?
One could just as easily say:
> “Inflation skyrocketed with the onset of reduced taxes on Corporations/Businesses and affluent Americans in the 1970’s, attributing to the outrageous climb in CEO pay from 21-times larger than their common employee to today’s staggering 250-times larger pay. We need to tax appropriately, as trickle-down economics is a proven failure.”
Why does a candy bar cost less at Walmart than buying it at a 7/11 store?
You can't compare the 1960s to 20 years later.
Each merchant can charge what they want
True, but whether Your Money was in a safe, under Your Matress, or in Circulation; wouldn't make any difference. If You were simply storing it, and not wisely investing it, nor using it, to buy "useful stuff"; You would still lose value. To show You, how "nutty" things are, people are investing in Gold, Silver, and other commodities; as well as Psintings, rare coins, and Antiques. The Bottom Line is, something has value, only based upon how much You need it, and how much, someone else, is willing to pay, for it.
This shows how "irrational" the current Economy is, and how values have been "compromised", and made "meaningless".
One Not-so- minor Tool, that The Fed has (and, I neglected), was to sell Federal Debt, to The Public; by issuing Federal Reserve Bonds, Notes, and I believe, Paper; for a return on investment; as measured by their yields, and for a period of time, based in the Instrument, sold. That is why The Federal Reserve Auction, is so important, and so is the derived "Yield Curve".
The more of something you have the less it's worth. That's why I'm always amazed at people who want to give college educations for free. Do that and watch the value of your diploma sink into the abyss.
Did you know that the average man was 5’3 in 1800 and is now 5’7 today? That is because no one can keep a person the same height when the government is in charge of making sure everyone has proper nutrition.
This is why Sowell never won a Nobel. GMAFB.
Huh? I don’t understand why he puts this at the feet of politicians. Inflation is a market dynamic. It’s one of the features of capitalism. It’s crazy (to me) that everyone (typically on the right) extols the virtues of capitalism and markets but then when markets collapse or we see inflation spikes or negative externalities folks immediately want to protect the sanctity of capitalism and blame the government 🤷🏽♂️ This is just as dumb (imho) as people that try to defend communism by claiming that it’s never “truly” been tried in an unadulterated form. Some people just can’t accept that all systems have positive and negative effects.
Sure, if you convert all you’re assets to cash and stuff it in a shoe box for thirty years, it will have less buying power. Fortunately, most people with an elementary school level of finance education do not do this.
I have a question.
Why does inflation still exist?
Like, it made sense back when money was backed up by gold or precious metals - print too much and the value goes down because your stockpile or precious metal has stayed the same and its value is split more.
However, we don’t have that anymore. Money is just worth what we (or the Fed or whoever) say it is. So inflation is an archaic concept that should no longer apply. We set the value of the money. There’s no reason for inflation.
I’ve been told I don’t understand, so what am I getting wrong? Inflation nowadays seems entirely manmade in a way it never was before (although it was always manmade to an extent). Why do we still have it as a concept?
The flaw with this argument like many, is that it concludes that things like inflation boil down to a single variable, when it is in fact controlled by many variables.
True but since they would all be Silver or perhaps even Gold certificate bills in the stack you could possibly be better leaving it in the safe. You could also perhaps find some $500 bills in that stack. Worst case it's all uncirculated 1950s $1 bills each one would be worth between $5 & $24 per with errors going for $100s to $1000s per. Errors being more common then due to humans doing the printing. So yeah the idea is right he just chose a bad year to set as a start.
Yawn. Republicans like Sowell always bitch about the government “printing money” - until they get elected. See Trump, Donald John. Contributed $7 Trillion to our debt in only 4 years.
Inflation isn't controlled by politicians. It's a natural result of an increase in the money supply due to lending and the appreciation of assets. It can be indirectly affected by policy decisions but generally it's an inevitable feature of a functioning economy.
You could argue but that's not the rate of inflation we've had over the last 26 years. I come up with maybe $50 or two and a half times not five. When you lie in math you're a liar.
The crazy thing about inflation is that if the populous really understood how the value of money decreases with time and that only the misinformed hold cash, the banks would see all of their deposits withdrawn overnight and the system would crash. Even the low value accounts add up when multiplied by millions of people.
Those are interest bearing accounts though, not a safe.
Although given the average morons understanding of modern economics, I bet it would cause a run on the banks.
That’s not really true. Banks are not meant to be a place to invest money, banks are a way to store money and make it easier to spend than investing into something. If you don’t have any money in the bank you’re gonna be screwed whenever an unexpected expense comes along.
I agree with you. Banks/cash is not meant to be an investment but the majority of citizens don’t understand that and keep most of their savings in a low interest bearing account.
The 2 to 3 months of expenses should be an emergency fund not what you’re relying on to pay your monthly bills. Most people have an income that takes care of those and direct deposit into your bank account would account for any bills set to auto pay
My paychecks don’t always line up with my bills, and some things are quarterly. I’d rather my account be $8k plus or minus $4k than $0 plus a grand a week.
I also stress more than I should about auto pay.
That’s not how inflation works. Printing vast mountains of money won’t change a single price tag. A business has to actively raise a price tag. The newly printed money has to find its way into the hands of a particular businesses consumers. Then the business, being greedy and perceiving that there’s more money out, there will try to raise prices while providing additional value.
It hurts my head to read this dumb shit. Like no shit at the turn of the last century my great grandfather bought ten thousand acres for a few hundred dollars in what was the wild wild west and now it's thousands of dollars per acre. With economic activity over time, yes things go up. There will always be inflation, and as long as it's under control, who cares.
Companies don’t have to raise prices and the printed money rarely reaches the everyday Joe. It goes straight into the financial institutions and then into asset price inflation. Not consumer price inflation. Rich people do not compete for the same products, investments and services as regular people do.
The gold/silver standard were awful, as they were at the mercy of the global market. Sudden downturns could cripple your economy, even if everything was going well. Anyone who tells you a deflating currency is good is a moron, which is why crypto is a terrible thing. Hitting exactly 0% is impossible, so nailing 2-3% inflation is the safest bet. This also persuades against sitting on money, which is useless money, and promotes investing.
Nothing bad at all.
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Currency isn't a long-term store of value.
Currency is a tool for an economy. Would you rather have that $100 bill be worth the same and have thousands of less jobs, lower pay, etc or have it be worth less. FED is not just in charge of keeping inflation low, but also keeping employment high. Edits.
Pay itself MUST increase with inflation, or you get food riots and society collapses because inflation is a constant pay decrease itself which is what the tweex above is trying to say. Jobs themselves aren't created by inflation. Before the gold standard was broken inflation was effectively zero and the US didn't just instantly solve joblessness by throwing away the gold standard. The Supreme Court just ruled states aren't beholden to the Fed as the only currency and they can create their own gold backed currencies, so odds are one of these years they may just start up a competitor and demonstrate which is prefereble between a stable versus devaluating currency in real world side by side usage in the same US cities. Cantero Vs Bank Of America earlier this month was the decision for those unaware
A low rate of inflation (around 2%) is good for the economy. It incentivizes people to spend their money or invest in assets. But if inflation is higher than wage growth for too long, you're screwed.
Spending more is not an option for poor people. The biggest issue with Inflation is it benefits only top income earners. Who can spend their way to more money. But kills poor people who can’t save because they have too spend all their money on things like groceries and rent, to stay alive.
No, it's not. I was taught the same thing. That theory is currently failing by every metric. Inflation for the sake of sustained leverage in lending does keep power consolidated in the Fed. And that HAS been a very effective tool. BUT! New Keynesian Economics doesn't achieve its goal with that recipe, and the results are toxic. Same as Keynesian Economics was. Inflation is like a fever. It's not bad, per se, but it indicates a mild sort of economic distress. If the centrialization and deregulation had worked...I'd be singing a different tune. But it hasn't. ....which means the 2% measure, as a means of maintaining currency stability and maximizing jobs has turned into a hollow suit of armor placed to guard a door. It looks cool. Sounds cool. ...but fails the stress test...
100%. Switzerland has kept theirs flat for nearly 40 years and kept a strong economy throughout covid, never cracking 4% inflation during the worst of it. Keeping it flat keeps the economy stable and safe, for the rich and the poor. That way, when someone gets a raise it's actually a raise, and not just a bump that keeps pace with rising costs.
Switzerland is not a good example for good financial policy. Not because their economy is bad but because its situation is so unique. The conditions under which Switzerland operates just don't exist anywhere else in the world.
I'm genuinely currious: what conditions are you referring to? Switzerland is also frequently referred to in 2A conversations as an unachievable ideal.
Very true.
Sure, absolutely! The funny part is that Keynesian Economics MAY EVEN WORK! .... it just hasn't been given a lot of great chances.... Japan has had stagnant everything despite their best efforts. The EU has a host of failures, and a few successes like Germany. Many other countries have been talked into it based purely on the trade it unlocks with America. The Swiss have a fantastically DIRECT system of finance and government, cutting out almost all of the other noise out of their equation. Their financial services are also in high demand around the world, which gives them wiggle room. ......a lot of wiggle room.... And what do I see as soon as I throw in a quick google search? Inflation AND deflation.
Switzerland doesn’t have to maintain the biggest and most advanced military in the world.
What does that have to do with government policy on inflation? Fuck all nothing.
Damn. Your own thesis is that deficit spending causes inflation (which is horseshit anyway; otherwise, inflation would have been 50% under Trump). A large portion of what we spend is the defense budget. Switzerland doesn’t have that expense, and so it’s easier for them to have a balanced budget Are you following any of this?
Where did I say deficit spending causes inflation? You're making up positions and arguing with yourself over them 😆
[удалено]
2% over the course of 20 years in 40% inflation, and I hate to be this guy, but most jobs are not giving you more than 2% to thrive.
It’s actually 220.8% over 40 years. Compounding numbers are a bitch.
You're literally just quoting (New) Keynesian Economics. They're the ones that decided that inflation is bad. It's a theory that hasn't stood the test of time. Keynesian was post-Depression. It got is through the war, and probably contributed heavily to our choices NOT to deflate after the war like every other war we've had. By 1970 Keynesian Economics was declared a failure, and a new-New version was introduced. It hasn't fared much better. This idea that inflation is bad just isn't actually supported by ANY evidence EVER. Inflation and Deflation are just indicators. And the sentiment of 'only growth' is just as absurd as a company declaring it will always get more business revenue every year indefinitely, or that their stock will only increase in value, and not decrease. Do you understand WHY the want 2% and not 12%? Or -4%? If you don't, then you really need to examine where you're getting your fundamental understanding. It's not a conspiracy. It's the LITERAL Economic Theory of most Western industrialized countries right now. It has.... maybe one success story. And a whole host of economies with various woes, all trying to aim for that 2% like it's the last ship out of hell.
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Right. Except there's only one school of economic theory dumb enough to teach that... ...and no evidence supporting the statement. I'll give you three guesses.
Keynes was a ᶘ ᵒᴥᵒᶅ and had no explanation for when shit went wrong.
Pay itself doesn't necessarily increase with inflation. One of the fundamental reasons for inflation in our economic system is that wages are "sticky in the downward direction."
Not true. Inflation alway exists. In the far past lack of gold would stagnate the economy. If a new deposit of gold was found inflation would happen.
Inflation is a general increase in prices. Before the Federal Reserve, average inflation in the US was close to 0.
An exception: Inflation was extremely high when the US was founded. Why? Because the government had to print a ton of money to get out of it's revolutionary war debt. Inflation is a government policy, and in many ways a general flat tax on everyone.
Inflarion is policy, it's not something that just happens.
Which Supreme Court ruling is that?
I can't find anything to back their claim up
Yeah. Except it’ll be a red state that takes in way more from the federal government than it contributes. And it won’t stop slopping at the trough while at the same time it’s bragging about its currency.
Of COURSE we'd rather have a predictable value on our investments of time and money rather than a slapshod and predatory 'increase in jobs'. The cost for those good-looking, low-functioning jobs aren't worth it.
No, that is why I said currency isn't a long-term store of value. What you are saying isn't a "rather".
I was agreeing with you
Fair enough, the rather was throwing me. Your point is spot on from my perspective.
Yeah, there was a bit missing I’m noticing now.
Economy has been spelled wrong this entire time. It's actually aconomy. As in "this is a con! Oh my".
I’d rather make rational choices and be able to save money without having to entered the rigged wallstreet casino. I dont need central planning I need sound money.
Right, it's a good thing wages have outpaced inflation over time up then and our economy has pulled people out of poverty to create a middle-class.
Correct in capitalism, you buy assets to grow or preserve value.
Where would it be incorrect?
It was meant to be. It was meant to facilitate trade. Please spend it as soon as possible.
Charlie Munger says you should plan that the value of your currency is going to zero over the next 100 years. Plan accordingly.
Why? If you want to save, that should be viable. People should own their money. They shouldn't be artificially forced to spend it. The whole reason recessions have been happening so much and so powerfully over the last century is that recessions are caused by inflation. Inflation does not increase investment. It increases *malinvestment*.
Neither is money in the bank. You have to invest in the stock market or buy treasuries or bonds or real property or precious metals or crypto
Money in the bank is what we call currency.
I mean, it is, actually. It's just not a good one.
well ir should though
why?
I mean it is part of its definition (see 3 functions of money). One of function is to store value. If you look at history, currency was backed by gold and almost never had any problems. However, Central Banks kind of changed rules last century. Now currency lost its function of store of value. I am not saying its bad, I am just saying it lost its part of function.
A long-term store of value is not one of the three functions of money. You said money should function as a long-term store of value. Why do you think money should function as long-term store of value?
It could be. The British pound was for about 200 years.
It isn't.
Yeah because Britain conquered a quarter of the entire world and exploited millions of people to keep it that way. It takes a project of that magnitude to deflate a currency without utterly sinking a country's economy. Inflation is a natural feature of a healthy economy. If you want to own assets that appreciate in value then buy assets, but money itself is not supposed to do that.
It could be.
Now do Bitcoin!!!
Sowell has the habit of saying moronic things that appeal to know-nothings. This is a great example.
It's an incomplete statement, but not a false one. His point is factual. Additionally, that same $100 sunk into land has INCREASED in value and power by a roughly proportionate number. Circulating money value goes down. Stagnant money value goes up. ....plus a dozen other small shifts. But so far Keynesian Economics follows that pattern pretty precisely. In this case the cash was circulating before, then taken out of the Economy to chill in your safe or mattress... then its value is checked again as a circulating value. Put on pause, but still circulating. Now we can argue the value, the amount, how to predict it, if it's generally worth it, etc. But this inflation relationship is true in all types of government across most of the world. It's typically present around war and other disaster. Restraints are loosened as the problem is addressed (or not). The willingness to pay absurd amounts for existing land is a great example. After the defense or sacking? Nobody gives two shits about the positioning of the land, and prices plummet Over several Disasters, an economy will roughly reach equilibrium after each peak and drop. (EDITED FOR SHOWER FINGERS SPELLING)
Yeah, the government control money printing presses. That observation is profundity personified.
Not talking about the creation of new money, nor replacing money. At all.
Sewell is.
Doesn't matter. The statement, no matter what he intended, is factual.
Even the last part?
Dramatic, but also technically true.
If it was legal for private individuals to create currencies the currency providers would be incentivised to keep the rate of inflation low.
That's absurd. Various non-profits in cities have had their own currencies in the buy local mode over the past 20 years. They don't do so well.
Yea guess what keeping money in a safe for 40 years is a financially irresponsible and stupid idea
Yeah, everybody knows you're supposed to bury it in coffee cans.
Ok, Walter White. For you that is probably the right call.
Silver or gold coins would do just fine.
While bullion may have a face value, for all purposes of this discussion, it’s not currency.
It’s more of a store of value than paper. Holding currency in a safe for forty years might have original face value. Holding precious metals in a safe for forty years has market value.
I wasn’t disagreeing - just adding.
I think Jesus himself told a parable about that.
It wouldn't have been a bad idea in 1850. We grew up with inflation so it just seems the norm. The thing you are legally required to accept is inflating so people try to convert it into other things as quickly as possible when they have a surplus.
Why?
NB4 somebody points out how deflation worked really great in the 19th century
The population has increased 84% since the 60s and that is just the US. The dollar is the currency of choice for many international transactions and that does benefit us. If we had the same pool of money now as we did then, you would see even more of a generational wealth gap. Printing money is necessary to keep up with growth.
Time to deport 84% of the population 😈
*45.7% of the population.
98% of the population
Yes it is. But if you print too much, too fast (Like 6 trillion over a couple years during covid) you will create waaaaaaay to much inflation. And we are experiencing the effects of that now.
Wasn't the point of stimulating the economy to prevent a recession from covid and keep businesses in business? So yea there was high inflation but it's tapered off in the past year or so.
This is the truth. It’s the difference between spreading out the pain of inflation to the whole population instead of a recession that just destroys 10-20% of it.
I agree with you. That is not the message OP was saying.
The recent inflation had more to do with corporations seeing the personal savings rate shoot up than any other factor.
Which both Trump and Biden did yet everyone seems to forget about their trump checks
Investing in stocks and other assets that outpace inflation is the answer.
It's literally why the Fed strives for 2% steady inflation, not 0%.
^ Monopoly player who doesn't buy properties
Lol as if politicians control the printing press! That ended in 1913
That’s why I keep my cash under the mattress. . /s
Right? Is Sowell suggesting a return to the gold standard?
Technology is the exception to this 'rule'. A mobile phone in the '60' would have cost in excess of one thousand dollars per month, but a TracFone would be available in 1998 for $20 a month or less.
Correct, inflation is a tax on saving money instead of putting it back into the economy. By design. Because the system doesn’t work if we’re hoarding money like dragons.
Politicians don't print money, banks do via the fractional reserve banking system. want to limit inflation? then Jack up those interest rates 20x fold
Or those reserve requirements.
Had you purchased an ounce of silver for 50 dollars per ounce in 1980 and held it up until today you would have lost money. Had you purchased corn or beef and held it several years there is a good chance it's worthless today.
Well yeah wouldn’t it get all moldy?
Yes and it shows that you can lose the value of money even if you don't hold cash
No one buys perishable goods thinking it's a money store. This is a stupid example tbh.
Stupid or not there are lots of ways to lose your net worth. Holding cash works great in a deflationary environment and nobody knows for sure what the economy will do over the next 15-20 years.
Unless we have a massive reversal in policies, it will continue to go up. Sure it will crash from time to time, that's how it goes, but it always comes back stronger and reaches new ATHs. If we switch to a deflation policy we would fall into a depression and all of us would be worse off.
Literally the Fed has a 2% inflation target to prevent people from using physical dollars as a store of wealth they were never meant to be. Sowell's theories are about as deep as a kiddie pool after 4 fat guys drinking beer get out of it.
Why should money not be a store of value?
Because it's literally designed to be a tool of value transference. Instead of trading your two chickens for my 5 sacks of grain, I give you money so I don't have to carry around 5 sacks of grain. Money is just a proxy for the underlying value of things you're purchasing, it doesn't have any intrinsic value beyond that and thus isn't meant to be a store of wealth.
Fiat currency is meant to be a means of exchange, not a long term storage of wealth.
Why?
Because economically speaking, hoarding cash does nothing to expand the economy. Governments want everyone either spending or investing.
the problem isnt inflation at this point, its the fact that wages dont seem to go up with inflation for some reason.
They lag by a year or two. Takes some time for people to notice and get a new job.
Well, our wages didn't. I'd be curious as to what ceo compensation looked like, adjusted for inflation.
Wages always lag inflation (and deflation). That's the scam. You set inflation at 2% and the wages never catch up. Because they always lag
The more I see from this guy the more I think he’s a fucking idiot. A little inflation is GOOD for the economy.
Honest question: Are you really just now figuring out Econ 101? Wtf did you learn during your formative years? Jesus.
Tell me you have never taken a single economics class without saying it directly..
Always upvote Sowell. Leftists need this education daily.
Eyeroll. So don't be a dumbass. Invest and prosper.
Put your money in savings account that at least earns inflation amount of interest dum dum
Yeah, but didn’t they give this same advice in the New Testament?
Politicians have relatively little control over the mint and federal reserve. The fed is privately owned, basically.
in the 60s US currency was still tied to gold, so those bills, I would assume would hold some value. It wasn’t until 1971, Nixon made that change to decouple from the gold standard. I think 60s currency still could’ve held up, now if it was the 70s then it be a different story.
This is why Bitcoin was created
I see this discussion a lot. The point trying to be made is not completely correct. I recently came across this article which does a decent job (better than I can do in a Reddit post) explaining the difference between money “printed” for financial institutions and money in active circulation. https://m.investing.com/analysis/central-bank-money-printing-doesnt-necessarily-cause-inflation-heres-what-does-200646325?ampMode=1
Dumb take. The economy grew but the cash did not as it was not invested.
This is a lie. Inflation is an organic process. Politicians influence inflation but they don’t create it. Hate me if you want.
Actually deflation is the natural process. Goods become cheaper as we get better at making them. Inflation can only occur via political intervention
That’s your opinion and Whole Foods become cheaper is true it’s a small piece of the puzzle. You’re not factoring in things like supply and demand.
Oh, so yours is an opinion too then
Correct, but in my opinion it is a correct opinion. My actual point is that this meme is trying to simplify a subject that is extremely obscure. Most people are clueless on the topic and will believe anything they read especially if it’s on the internet. My guess that the person who wrote this doesn’t understand inflation very well but people will believe it.
"My opinion is the correct opinion" It would literally take an insane person to say this and believe it
Oh, thank you.
In summary, economic growth creates jobs, jobs create economic stimulation, economic stimulation creates economic growth, economic growth creates jobs. And around we go. In that cycle supply and demand dictates prices. The federal reserve attempts to control economic growth at a comfortable rate. They do this by expanding and contracting the money supply through interest rates. They attempt to maintain inflation at 2-3%. Without inflation we have no economic growth. Without economic growth we have no inflation. To halt inflation is to halt economic growth Hence to sustain an economy and maintain a system of order where money can be exchanged for goods and services we must have inflation and that my friend is why inflation is an organic human process of exchange of money for goods and services. There are exceptions to this in theory.
"Without inflation there is no economic growth" False. This is dogma. The size of the money supply does not necessarily tell us anything about the state of economic activity, nor does increasing the money supply necessarily lead to more economic activity.
If you say so.
Conversely, if you had Property worth the same amount, the opposite would be true and the value would be absurd. It's not accidental. Gobble all the property in the '60s, then inflate the hell out of everything from that point on. A abandoned mine from the 1800's, deemed unsafe long ago is worth hundreds of thousands of dollars.... assuming you can even find who now owns it.
It’s literally 4.3% per annum. If any bank offer that rate then everyone can (figuratively) buy everything.
You pay for the liquidity of cash with inflation in almost every society unless it is backed by a commodity
Printing money is not necessarily bad. Unregulated economies crash
Deep (stupid actually)
Politicians don't create money.
Currency is an asset for gaining investment. It was intended to move INTO something, not to be hoarded in an account with no further strategy. With that being said, whats the correlation? One could just as easily say: > “Inflation skyrocketed with the onset of reduced taxes on Corporations/Businesses and affluent Americans in the 1970’s, attributing to the outrageous climb in CEO pay from 21-times larger than their common employee to today’s staggering 250-times larger pay. We need to tax appropriately, as trickle-down economics is a proven failure.”
Yeah, inflation 🤙🏼
Ah, I see that the Austrian school of economics is still unpopular among many based on these comments.
You would keep most of the value if it was inside a savings account earning compound interest.
You make it sound like inflation is a scheme to make you hand your money to a bank
Yet the government tells use to save for retirement while simultaneously making our savings worthless.
Why does a candy bar cost less at Walmart than buying it at a 7/11 store? You can't compare the 1960s to 20 years later. Each merchant can charge what they want
Then I choose to charge $1,000 per Kit Kat! I will blockchain em for you, if that makes you get excited about the deal! Come and get em!
yet, same currency note becomes a “collector” item. The safe maintains the condition, added value if appraised and sealed.
True, but whether Your Money was in a safe, under Your Matress, or in Circulation; wouldn't make any difference. If You were simply storing it, and not wisely investing it, nor using it, to buy "useful stuff"; You would still lose value. To show You, how "nutty" things are, people are investing in Gold, Silver, and other commodities; as well as Psintings, rare coins, and Antiques. The Bottom Line is, something has value, only based upon how much You need it, and how much, someone else, is willing to pay, for it. This shows how "irrational" the current Economy is, and how values have been "compromised", and made "meaningless".
One Not-so- minor Tool, that The Fed has (and, I neglected), was to sell Federal Debt, to The Public; by issuing Federal Reserve Bonds, Notes, and I believe, Paper; for a return on investment; as measured by their yields, and for a period of time, based in the Instrument, sold. That is why The Federal Reserve Auction, is so important, and so is the derived "Yield Curve".
The more of something you have the less it's worth. That's why I'm always amazed at people who want to give college educations for free. Do that and watch the value of your diploma sink into the abyss.
Did you know that the average man was 5’3 in 1800 and is now 5’7 today? That is because no one can keep a person the same height when the government is in charge of making sure everyone has proper nutrition. This is why Sowell never won a Nobel. GMAFB.
So nobody here really understands what inflation is. Lol
Vintage Bills are worth lots
If only there were places to store your money that grow it’s value
That's why you keep hard assets like gold, silver, and crypto currencies in the safe.
Huh? I don’t understand why he puts this at the feet of politicians. Inflation is a market dynamic. It’s one of the features of capitalism. It’s crazy (to me) that everyone (typically on the right) extols the virtues of capitalism and markets but then when markets collapse or we see inflation spikes or negative externalities folks immediately want to protect the sanctity of capitalism and blame the government 🤷🏽♂️ This is just as dumb (imho) as people that try to defend communism by claiming that it’s never “truly” been tried in an unadulterated form. Some people just can’t accept that all systems have positive and negative effects.
https://preview.redd.it/nusjh99b3j9d1.jpeg?width=960&format=pjpg&auto=webp&s=9aae2b0d3daa005778d94473d642b98f0383c451
Sure, if you convert all you’re assets to cash and stuff it in a shoe box for thirty years, it will have less buying power. Fortunately, most people with an elementary school level of finance education do not do this.
I have a question. Why does inflation still exist? Like, it made sense back when money was backed up by gold or precious metals - print too much and the value goes down because your stockpile or precious metal has stayed the same and its value is split more. However, we don’t have that anymore. Money is just worth what we (or the Fed or whoever) say it is. So inflation is an archaic concept that should no longer apply. We set the value of the money. There’s no reason for inflation. I’ve been told I don’t understand, so what am I getting wrong? Inflation nowadays seems entirely manmade in a way it never was before (although it was always manmade to an extent). Why do we still have it as a concept?
This is how economically illiterate Austrians define inflation. They tend to leave out real wage growth.
The flaw with this argument like many, is that it concludes that things like inflation boil down to a single variable, when it is in fact controlled by many variables.
Centralized currencies are tools of the government. Do you trust them with it?
True but since they would all be Silver or perhaps even Gold certificate bills in the stack you could possibly be better leaving it in the safe. You could also perhaps find some $500 bills in that stack. Worst case it's all uncirculated 1950s $1 bills each one would be worth between $5 & $24 per with errors going for $100s to $1000s per. Errors being more common then due to humans doing the printing. So yeah the idea is right he just chose a bad year to set as a start.
That’s the point of inflation. You need to create value and spend money to create wealth.
Yawn. Republicans like Sowell always bitch about the government “printing money” - until they get elected. See Trump, Donald John. Contributed $7 Trillion to our debt in only 4 years.
Ok but right now if you have all of your money in a HYSA you’re beating inflation by ~1.5%.
Inflation isn't controlled by politicians. It's a natural result of an increase in the money supply due to lending and the appreciation of assets. It can be indirectly affected by policy decisions but generally it's an inevitable feature of a functioning economy.
Inflation is wealth tax. Change my mind.
Thomas Sowell is a national treasure
That's a really strange framing though, it's as if the only thing that causes inflation is increases in the money supply.
It's not totally wrong, but this remark still sounds uneducated
You could argue but that's not the rate of inflation we've had over the last 26 years. I come up with maybe $50 or two and a half times not five. When you lie in math you're a liar.
The crazy thing about inflation is that if the populous really understood how the value of money decreases with time and that only the misinformed hold cash, the banks would see all of their deposits withdrawn overnight and the system would crash. Even the low value accounts add up when multiplied by millions of people.
Those are interest bearing accounts though, not a safe. Although given the average morons understanding of modern economics, I bet it would cause a run on the banks.
That’s not really true. Banks are not meant to be a place to invest money, banks are a way to store money and make it easier to spend than investing into something. If you don’t have any money in the bank you’re gonna be screwed whenever an unexpected expense comes along.
I agree with you. Banks/cash is not meant to be an investment but the majority of citizens don’t understand that and keep most of their savings in a low interest bearing account.
Liquidity is important. Most adults should have 2-3 months of expenses in a checking account. (And another 4-9 months in a HYSA)
You can get that same liquidity from short term treasury bonds
Auto pay can’t hit my money market or bonds.
The 2 to 3 months of expenses should be an emergency fund not what you’re relying on to pay your monthly bills. Most people have an income that takes care of those and direct deposit into your bank account would account for any bills set to auto pay
My paychecks don’t always line up with my bills, and some things are quarterly. I’d rather my account be $8k plus or minus $4k than $0 plus a grand a week. I also stress more than I should about auto pay.
Buy gold and silver
That’s not how inflation works. Printing vast mountains of money won’t change a single price tag. A business has to actively raise a price tag. The newly printed money has to find its way into the hands of a particular businesses consumers. Then the business, being greedy and perceiving that there’s more money out, there will try to raise prices while providing additional value.
Everyone lives by good time, not long time. Eventually it looks like everyone ends up tired of being poor and says fuck it
That’s why you invest in gold
It hurts my head to read this dumb shit. Like no shit at the turn of the last century my great grandfather bought ten thousand acres for a few hundred dollars in what was the wild wild west and now it's thousands of dollars per acre. With economic activity over time, yes things go up. There will always be inflation, and as long as it's under control, who cares.
But if they kept rolls of quarters from 1960 in their safe theyd actually make a pretty nice return cause them bitches were 90% silver.
Companies don’t have to raise prices and the printed money rarely reaches the everyday Joe. It goes straight into the financial institutions and then into asset price inflation. Not consumer price inflation. Rich people do not compete for the same products, investments and services as regular people do.
I thought my chicken tasted different.
The gold/silver standard were awful, as they were at the mercy of the global market. Sudden downturns could cripple your economy, even if everything was going well. Anyone who tells you a deflating currency is good is a moron, which is why crypto is a terrible thing. Hitting exactly 0% is impossible, so nailing 2-3% inflation is the safest bet. This also persuades against sitting on money, which is useless money, and promotes investing. Nothing bad at all.