Hard times aren't as safe as good times, all around.
Investors get paid to take risks. The less risk you want, the less you get paid, and there is a point at which you're taking so little risk that you get paid less than you lose to moths and rust. During hard times, the level of risk required to get a positive return is higher.
Alice, Bob and Carol come into the bank and each take out a $5000 loan. The bank credits each of their accounts with $5000, but there is still only $5000 in their vault, so now they have 25% reserves. As long as the reserve requirement is below 25%, this is fine. If the reserve requirement was 30%, they couldn't make that many loans.
With a 0% reserve requirement, they could loan your $5000 to a million different people and have 0.000001% reserves and still be allowed because 0.000001% is more than 0%. They could send you away and the bank manager could deposit a dollar and they could make unlimited loans from it. They have no use for your money.
If we can't even rely on a stable currency, what is the point of government? we might as well go back to bartering. In fact, this is what is happening. As people can't rely on money to hold it's value anymore, they're going back to hard assets like stocks, and real estate.
If you think it's bad knowing that your dollar will devalue 2% every year, imagine trying to make plans not know whether it was going to drop or go up 7% next year--or anything in between.
Inflation is at record lows. If anything, deflation is rearing its ugly head.
Inflation is much closer to whats listed here for many americans. https://chapwoodindex.com/
The reason e.g. rents are high is that there is high demand for housing in cities and zoning restricts new construction. That's not inflation.
"if we calculated inflation today the same way we did during Carter’sadministration, CPI would be closer to 10% rather than the 1.5% calculated as of 12/31/10 by the government."
https://www.cornerstonewm.com/downloads/measuring-inflation....
You can’t punish people for saving on one hand and then charge them exorbitant rates or deny them loans altogether when they want to purchase a house without that down payment at hand.
I'd like to explain this to my elderly parents, who have cash sitting around in savings accounts and don't invest, but don't think trying to scare them with "moths and rust" is going to be very convincing.
What's a more convincing way to explain this?
Also, are money market accounts also going to be hit hard by negative interest rates, or would that be considered investing?
I don't think it'll touch strongly on saving your money being a bad idea, and I really don't remember anything about negative interest rates, but it does make investing seem much less scary.
That's fair.