> as you can#'t make gains just by sitting on the medium of exchange

So instead they speculate on assets like commodities and energy (excluded from core inflation) and real-estate. How is that any better?

> And yes, inflationary currencies encourage investment

You can't encourage investment without encouraging savings. What you end up with is too much money going after too few assets. This is why interest rates are so important. Too high and the market bubbles, too low and the market tanks.

For inflationary currencies, you have a group of dudes who declare what the rate should be. That to me is the weakest part of this whole scheme.

Instead of a council of wizards declaring the interest rate, market money works more like a feedback loop - with the rates being set by supply and demand.

The best part of market money is, instead of banks being allowed to loan out printed money - loans have to come from people who save and defer consumption.

I'd rephrase the parent comment to say "inflationary currency steals from savers". Imagine someone like me, without debt but trying to save money for something (larger deposit so I don't have to take 30 years mortgage for example).

I am not rich by any stretch but I am not poor either. Probably I would fall into middle class (if middle class still exists as it's been disappearing). Inflation is really harming me and people like me.

Basically what inflationary currency does is it forces frugal people who would otherwise not go into debt to take loans anyways as they realize that saving is a lose lose idea right now. Better to take a mortgage or two and let inflation slowly erase value of your debt.

Saving's a poor idea at the moment because the interest rates on offer are so tiny.

Looking at the last 25(ish) years of UK data the base rates have tended to be above inflation, until the 2008 crisis.

But yes, inflation will slowly devalue your debt if the debt is a static amount, borrowing can be a good driver of growth, when managed well. And sitting on piles of currency is not good either - the currency is a medium of exchange, not a store of value, it's better to encourage the economy by encouraging investment over hoarding.

Further, deflationary currency values work yesterday over work today, helping people lock in value and higher wealth purely by being older entrants into the market.

Inflationary currency values work done tomorrow over work done yesterday. If there's a major catastrophe, like, say a giant hurricane that devastates a coastal state with a healthy economy, then the returns on work done tomorrow have a effect that can cascade through the economy magnified by the money multiplier. On the other hand, if you valued work done yesterday, and a bunch of value is destroyed by a major disaster, it is a sunk cost, not an unfunded liability that affects the person who depends on the payment of that liability, and the person who depends on that person, and so forth.

The thing is I really entered economy (got a university degree and started working full time and getting paid) around 2011. So in my life I have never experienced a time period which was good for savers.

Just seems to me that as a saver I never get a break in this economic system. I feel pressure to go into debt and take some crazy loans just not to be left behind.

I think my work experience is quite short though, just 6 years or so. Over longer period of time, since economy moves in cycles, there will be a cycle with higher interest rates (like 5-10 percent) which will again be good for savers. Waiting for this cycle to arrive :)

The advice today is pretty much the same as it was 5 years ago: buy into a low cost fund. Since you're in the UK, through a Stocks & Shares ISA.

I recall the same complaints about low interest rates back in 2012, but the returns from, for example, the Vanguard LifeStrategy 80% Equity over the last 5 years were 16.07%, 9.16%, 8.00%, 10.84%, 17.04%. A bit better than a savings account. Of course, when there's another market crash the value will drop, but there you go.

Which country do you live in and what inflation rate (and what metric) are you suffering under? Versus what rate of return on basic index fund?

Plenty of countries have lived through double-digit inflation. The real issue there is not so much savings as wages: inflation means needing to renegotiate wages more often. This caused a lot of the UK's labour unrest in the 70s, for example, or the problems of Brazil leading to the "Real".

Also people keep thinking inflation is purely due to money supply and forgetting that eventually you have to exchange money for goods and services at some kind of price level.

I live in London, UK. I agree inflation is very low right now (has been for a decade in EU really). However this is still really bad for savers like me as there is no safe place for me to store my money with any sensible interest rate (most banks here will give you something ridiculous like 0.25% interest rate on savings now...). Feels like savers never get a break in the current economic system.

But I was making an argument about why inflationary currency might not be great for everybody. It's definitely not a win win. Inflationary currency helps some people but also harms other people, deflationary currency would just switch groups that are being advantaged/disadvantaged.

I don't believe it would, it would slow the economy a lot in many different ways.

The post you replied to asked about the returns on a tracker fund as compared to inflation, as that's generally the way to make relatively safe, modest interest on money at the moment. Investing, rather than saving.

Unless you're saving it in forms of wads of cash under the bed, you should be getting some interest from it, even if it's just parked in a bank account. And even larger interest if you actively look around for opportunities to invest. And such investment is beneficial to other economic actors, who are on the receiving end of it.

the poor do not usually 'have debt', and when they do, the interest rate is high (payday lenders, credit cards). Inflation does not benefit people with high interest rates, it benefits people with very large pools of money borrowed at interest rates near or lower than inflation. That is mostly institutional investment and banks, and select high value leverage traders, a mostly wealthy subset.

The poor are hurt by inflation because their wages are more severely devalued by real value loss. If you're spending most of your wages on day to day expenses, the effect on "margin of survival" from a small devaluation is hugely magnified relative to if you're spending very few of your wages on day to day expenses. I suggest you work through some math on the back of an envelope to really understand this effect. An easy case: Let's say you are barely scraping by, spending nearly 98% of your wages on expenses and there's 3% inflation. What happens next? What happens if you spent 20% of your wages on expenses in the same scenario?

The common retort is that "wages catch up to inflation" but that's nonsense. The whole premise of inflation being used to stimulate jobs is that it devalues the real cost of employment: you can't have your cake and eat it too.

Finally, "encourage investment" well if you think that every investment is wise that is reasonable. However, inflation pushes people into investment. So what that effectively means is that cost of the risky business behavior of the top classes is socialized. You could also see it as 'encouraging consumption', which if you believe in conservation as a moral good, is antithetical.

It is true that inflation will make the value of the debt shrink over time, however that is only true of wages rise at the same rate or faster, something that has not been happening. So inflation reduces the value of the debt whilst at the same time interest rates increase it to make up for the lost value and without a corresponding rise in wages then the value of the debt is not falling and becoming easier to repay as you suggest it would.

At the moment, the base rates in the UK are well below inflation, it's entirely possible to get a mortgage (for instance) at a rate lower than inflation, eroding the debt in real terms.

The wage thing is a red herring, and has effects regardless of the currency model.

Base rate is below inflation but you try and find a mortgage at that rate. HSBC currently have a fixed rate mortgage at 1.94% for 2 years, base rate is 0.25%. Inflation is currently at 2.9% so you could get a mortgage where the debt is eroding in real terms however I am not sure why you would disregard wage inflation this scenario, wages are required to pay the mortgage, and whilst there may be other factors involved wages inflating a slower rate than general inflation means that the "real term" debt reduction we are discussing is practically non-existent for most people.

I disregard wage inflation in this scenario because we are comparing inflationary and deflationary currencies. In either case if the change in your wages doesn't stay above the change in value of the currency you're stuffed.

i.e. it's not a property of the money.

But it is a property of the money. Part of the reason why inflation is a policy is that it supposedly creates jobs, which is why professional economists fret about stagflation threatening their vaunted models. The way that inflation theoretically props up jobs is by reducing the real value of labor[0]... So wage erosion is fundamental raison d'être of the currency.

A cynic would argue that the policy works because a good way to enforce employment is by forcing people to stay afloat.

[0] https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...

Ah I see, then yes theoretically you can borrow and watch low interest rates and high inflation erode the value of the debt.