It doesn't sound like much because we've become innured to it. But, it's really bad. Just think, you earned 100K in 1 year and 1 year later it's only worth 97K. That's a tax of 3K just for holding on to your money, on top of all the taxes that already exist (Govt spending is 40% of GDP ~ and that's just nationwide.)
After just 20 years of 3% inflation, your money is worth half of what it was when you earned it. What's the point of government if they can't even provide a stable currency? Is the expectation that everyone must now buy equities and real estate? Are we to go back to bartering?
2) The idea that 2-3% inflation is "really really serious" is completely absurd. I'm guessing you're young because historical US inflation prior to the ridiculous post-2009 financial situation had long periods of being well above 3% and the sky didn't fall. Inflation above what we've seen in the last decade is not necessarily a bad thing.
>The Fed considers a 2% inflation rate to be a sign of sustainable growth and a level that keeps interest rates high enough to allow for mobility in the event of an economic downturn.
For the first time in a very long time we actually have a shortage of supply. We didn't have that in 2009.
But I think/hope it will be short lived, and depending on how we act now it could easily turn into a shortage of demand once again.
If stuff doesn't get manufactured for months, we will have a shortage of many other things as well. Obviously we have a lack of demand for other things at the same time.
I don't think there is that much unreasonable stockpiling. People are no longer eating out. Kids are no longer eating at school. So people buy more at supermarkets. They also buy for a week, quite sensibly, to avoid making a trip to a crowded supermarket every day.
Combine that with finely tuned just in time logistics and you get a bit of a crunch. There's simply a misalignment of capacity right now, but there could be a real shortage of some essentials soon.
Fairly few households are interested in buying canned tomatoes 18 quarts at a time.
Gyms are closed, so go try to find a squat rack, a bar, and some bumper plates for a home gym. Or dumbbells. Or even some crappy resistance bands. You can't. Nobody is hoarding 45lb plates for future use, they're demanding them for use now. Expand this for every industry impacted by shutdown orders. It wouldn't take long to think of hundreds of examples of non-hoarding shortages.
Inflation is coming. Shortages are the market telling you that price MUST increase to equalize demand. And it will.
True, but misleading; again, it's real rather than nominal rates that matter to most people. Before the GFC you could get interest on savings above the rate of inflation, even after tax. Not spectacular gains, but saving was at least possible.
After the GFC your choices are to either a) join the long queue of ever-greater fools piling into the casino, or b) watch central banks confiscate your money, year after year, forever.
Americans don't need to buy their 6th iPhone to save this economy, we just need to focus on what's important. It's very telling of the state of current US politics that when a crisis emerges, everyone says we have to help rich corporations stay rich.
If aliens invaded us today our first reaction would be to lower interest rates.
We are going to have deflation. The stock market already "deflated". Just wait for the rest. Food prices are going to go through the roof (and maybe medical procedures) but everything else is going to get cheaper.
Another big chunk is housing, which as far as I know, shouldn't expect much difference in supply or demand in the short term, though demand may increase (at least as measured by square footage) if people are staying home for a long enough time. That may be countered by the reduction in demand for real estate by businesses, though zoning will probably limit the short term effects that has on housing.
Really serious inflation is when prices in supermarket change twice a day like in Brasil in the old times. It is Weimar style hyperinflation where everyone want to get rid of paper money right away.
Inflation of 2-3% is actually desirable - it is a sign of healthy, growing economy. Additionaly it is good for public finances as most expenditures is fixed and tax recipes are over the target. Yes it is a kind of tax on people but in healthy economy who cares?
Most central banks and banks in general (also insurers) dread deflation not small inflation.
Why 2-3% and not 5-7% or -1-1%? Source for this assertion?
For those who have yet to have the enjoyment of the experience: https://brrr.money/
I've seen it used in other contexts but can't quite fully grasp what is meant by it.
https://www.nytimes.com/2020/03/23/upshot/coronavirus-fed-ex... (The Fed’s Message: The Money-Printing Presses Are Fired Up and Ready to Go)
Like like after the 2008 crisis that didn't lead to inflation, this won't either, as long at they turn off the money printer when people start investing again.
It's worth pointing out that this is not "weird", but rather the natural state of things! The effect is so strong in computing that we still see it, but technological progress means everything in general gets easier to produce.
This policy that "prices must always go up" is itself the aberration, instituted to keep the plebs working "full time" and to undermine their ability to save.
Productivity growth is normal-ish, but the amount you prices have been all over the place throughout history.
Deflation should be the natural order of things; for example the unit real cost of food had gone down massively since the first half of the 20th century, which is a huge part of why people don't starve to death during recessions anymore.
Yes, and it is, for existing unchanging things. But as productivity grows we invent and buy new and improved things.
A lot of economic activity is adversarial and negative-sum. In the best case it's negative-sum but a multiplier of over 1, like police work. In the worst case it's value-destroying Uber vs Lyft wars, where companies spend on guns to fight each other with, which effort is forever lost for butter. Digital marketers are the soldiers in these battles, along with lawyers and security people.
In other words, just because everyone's rich doesn't mean there won't be someone willing to pay a lot of money to get more of the pie. Which leads to good scarcity (both from a smaller overall pie and the public having less access to it) and more money flying around, and boom, inflation.
We are in this situation today.
I do not think it makes sense to insist that money can only ever be subjective based on the possibility that transients can occur - eg a factory burning down does cause natural price inflation, but this is an exception rather than the rule.
Except in health care, education, and real-estate - all three of which are needs more fundamental than personal computing or electronics.
Denmark has a negative interest rate [1] but has had a (positive) inflation for a while [2].
[1] https://en.wikipedia.org/wiki/List_of_countries_by_central_b...
[2] https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?location...
I never understood/agreed with this argument. I'd much rather withdraw all my money and keep it in a safe than lock in a loss. I suppose for most people though the minor loss of principal outweighs that inconvenience, but for me, as a matter of principle, I refuse to be paid less than my principal (I didn't mean for that to come out as cheesy as it did).
He talked about feudal times when landowners had to store their gold. So they had to build these massive castles with walls, hire professional soldiers, train their kids to wield weapons and even give some of their land to particularly good soldiers. That system was really expensive so they needed slaves to keep the whole system going. Since all the other landowners knew that you had all your gold in your castle, when they came upon hard times they would often attack. So, you would give your slaves primitive weapons and have them fight to defend ‘their homes’.
From the serf’s perspective, that system sucked. They worked hard, didn’t get paid and occasionally had to go into battle to protect their landowner. After a few generations, when you say “you know, Grandpa died in a battle. Dad and all my uncles died in battles. Three of my siblings died as infants. And they want me to take a fucking spear and protect that system?
Over the years, the system collapsed because slaves could get a better deal in cities. Landowners couldn’t afford their fortunes and castles fell into disrepair.
Basically, banks seem like a real ripoff until you consider the reality of having to store all your money in an environment where everyone knows whereabouts you have it stored!
You're acting like I would go on hackernews and tell everybody where my money is or something...
The castles and gold vaults were nice but only as a temporary store of wealth. Most of rulers were constantly in debt used to pay for wars and representation (buying influence).
XIX century introduced bonds which paid yields in coin, bankrupted most of landowners and created this new breed of entrepreneur capitalist.
Since we're discussing a negative rate environment, presumably this is a stressful time for the economy making this more likely than history would indicate. If you have your assets at multiple institutions to stay under the limits, what's the probability of one of those failing, and what's the probability the FDIC fails?
Depending on how negative rates are, the math can quickly turn those probabilities you outlined above into risks I'm willing to take.
Does the United States risk doing damage to our currency and how other nations use it with the stimulus/money printing that is going on?
This might be a pretty new condition for some people.
edit: for those wondering you wanna look at a Consumer Price Index (CPI) to dertemine inflation/deflation
(Obviously big businesses can't do this.)
Here's a quick example. Let's say you're in a deflationary environment: in 1 year, your money actually buys you more than it did last year, let's say for instance, 2% more. Under this weird environment, you would actually be willing to pay someone to hold your money for a year, because you know in a years time, it will buy you 2% more (effectively a 2% return). So, since you don't want to store that money under your mattress, how much will you pay someone? Let's say you pay your bank 0.5% for holding your money (i.e. negative rate). So in a years time, you get 99.5% of your money back from the bank, but it buys you 2% more "stuff" so really, compared to today, you're getting 101.5% (roughly) of your money back, which is the same as a 1.5% interest rate. This is called the "real" interest rate, and it's the only one that matters.