“Wealth” as most people think of it comes from power over money more than from the absolute value of net worth.
I had a lot of credit card debt in University. I was the richest person my friends knew. That money gave me access to people and opportunities I would not have had otherwise. Today, I owe a million dollars ( mostly mortgage ) but am considered quite well off I think. Don’t get me wrong, I am far from wealthy but I am probably the “richest” person in my family.
In University I used to joke that if you gave $50,000 to a penniless man with nothing, he would have $50,000 ( be doing pretty well ) whereas if you gave it to me I would be broke and it would not change my life at all. Today, I guess it would be several hundred thousand instead but otherwise still totally true.
If your average Latin American country was able to borrow as much per person as the US owes, they could build roads and factories and hospitals and universities and chip foundries and be instantly wealthy. The only problem is who is going to lend it to them?
Wealth is not what we think it is.
This is exactly my point: someone who borrowed money for, say, university or to buy a house or a car is helped by inflation. By comparison wealthier people who are more likely to have bought those assets outright, are not. And the wealthiest people who are - directly or indirectly - the ones lending out money to other people see their wealth transferred to the first group.
People with more ephemeral assets and in service business are harmed by inflation. The service sectors in particular are full of low quality, debt-laden companies who can’t withstand interest driven financial stress.
This is completely incorrect. The rich are net lenders. They are also net interest recipients.
The companies they own are also net lenders.
They get away with it because they don't make the distinction between price inflation and asset inflation. The cost of bread doubling is a huge problem for the poor, but means little to everyone else. The cost of assets doubling doesn't matter to the poor, because they have never, and will never save enough money to buy assets. The cost of assets doubling matters greatly against a yuppie who is trying to buy a home. The cost of assets doubling matters greatly in favor of someone who bought a home last week.
Inflation sucks for you if you earn minimum wage, because half the country thinks that raising the minimum wage to keep up with inflation means will bring about the apocalypse. Inflation doesn't matter much to you if you're in a high-demand industry, with wages rising to match it. Inflation sucks for you if you're not working, but doesn't matter to you if you are, and there's a labour shortage, which increases your wage bargaining power.
If inflation robs the poor person of the $500 and helps the middle class person with a mortgage.... all other things being equal, we transferred wealth from the poor person to the middle class person. yay, with me so far?
By the same account, if the middle class person is helped a little bit by inflation, (but also has some cash) the rich person who is leveraged many times over into 10 properties, and has most of their wealth in equities (which themselves are leveraged because of corporate debt) is going to be even better off after the increase in money supply.
Their share of the pie grew and the middle class persons maybe grew, but not relative to the rich person. Therefore, that is wealth transfer.
The majority of US equities is held by the upper class and corporate debt dwarfs consumer debt (including mortgages).
Inflation helps people who owe more than they lend out (most poor and middle class people). People who lend out more than they owe, directly or indirectly through stake in companies that do lending, are the ones experiencing less profit because of inflation.
We don't have to speculate about how much debt rich people have, you can look at what % of equities is owned by the upper class and you can go compare consumer debt to corporate debt.
Now as to the banking system, there's a little bit of a feedback loop here because they're really the ones creating money, so no they're not really a net creditor either. I owe my bank 700k on my house, but that's new money being created in some respects.
No. Not at all. Apple, #3 on the list for example, has hundreds of billions its loaning out because it has nothing better to do with its excess cash [1]. Almost every company on that list has positive total equity, some on them on the orders of hundreds of billions of dollars.
> We don't have to speculate about how much debt rich people have, you can look at what % of equities is owned by the upper class and you can go compare consumer debt to corporate debt.
I'm really baffled at what you mean by this? Yes, the rich own most equity. But how do you interpret this has having more debt? Equity isn't debt, it's ownership in a company.
> Now as to the banking system, there's a little bit of a feedback loop here because they're really the ones creating money, so no they're not really a net creditor either. I owe my bank 700k on my house, but that's new money being created in some respects.
Sort of? Banks don't get to regulate currency supply, the Fed does. It's true that banks leverage more than they have in their reserve, but that doesn't necessarily increase the money supply.
And my point is if you owe 700k on your house and inflation doubles (all prices go up 2x, but so do all wages) then this is very good for you. You effectively got a house for half the price. If you are a multi-millionaire real estate mogul who's writing mortage loans, then this not good for you. That money invested in the home loan isn't even going to keep up with inflation.
"has hundreds of billions its loaning out because it has nothing better to do with its excess cash "
It's really fixed rate loans that are 'creditors', not investment firms. Some googling tells me they also have ~230 billion in outstanding debt. So I think it's safe to say in this example they're a net debtor.
>But how do you interpret this has having more debt?
>Sort of? Banks don't get to regulate currency supply, the Fed does.
>If you are a multi-millionaire real estate mogul who's writing mortgage loans, then this not good for you.
No, I'm not with you, because it's not the poor person who is fronting a million bucks in cash that the middle class person borrows, in order to buy the house.
For the obvious reason that he doesn't have a million dollars to lend out.
FYI, corporate debt is ~60% of household debt in the United States. (~10T vs 15T). Corporate cash balances are ~4T, and household cash balances are ~5T. [1] Net corporate debt is ~6T, and net household debt is ~10T.
You look at these numbers, and you tell me - who benefits more from having debt inflated away?
[1] https://www.valuepenguin.com/banking/average-savings-account...
In our contrived example, now the middle class person owns a bigger slice of the pie after the pie doubled in size due to their leverage.
So yes, if we have an incorrect contrived example that doesn't even attempt to serve as a proxy the ground facts, and we ignore half the consequences of it, yes, of course, we can draw whatever conclusion you want.
Still not with you.
[1] Yes, obviously, its possible for a government to spend that money on stupid shit. It's a good incentive to elect ones that spend it on useful things.
>our contrived example very conveniently excludes what inflation buys
So once the contrived example made sense to you your first response is to move the goalpost completely and talk about something unrelated?
We're not talking about the necessities of monetary policy we're talking about the effects, please focus on the relevant parts of a debate instead of jumping around to avoid conceding a (very basic) issue.
As an aside, you picked infrastructure as your main deflection point? Do you have any idea what % of US revenue is spent on infrastructure compared to everything else?
You also seem to misunderstand per capita vs. aggregate. Do you think if poor people have as much money in aggregate as one rich person that means they're rich? In the same way, comparing all outstanding consumer debt (of which the vast majority of mortgages) is not helping your argument, you'll have to show me a breakdown that shows on average a poor person is more often a net debtor.
You also need to distinguish debt into assets vs. depreciating assets. Using leverage on stock is not the same as buying nikes with a high interest credit card.
The rest of your argument unravels, because you've based it on this fundamentally flawed assumption.
>The rest of your argument unravels, because you've based it on this fundamentally flawed assumption.
If there are two groups of people and you give them both newly created money, but one group more money, the group that got less is worse off. Just because number go up doesn't mean they're better off.
When he retired, his compensation was greater than the sum of salary for the entire company. The company paid for his Tesla lease, but orderlies making $12/hr had a uniform deposit deducted from their first few checks.
You know that the arguments about poor grandma with $500 life savings are bullshit, because everyone making them would happily let grandma die for a buck.
The only reason resource extraction types care about inflation is that most use debt to avoid taxation, and increase interest rates hurt their return on assets. Because the perversion of the US Senate has happened, we care more about corn companies, oil drillers, etc than anyone else.
And this is true for everything. For housing, for stocks, for lent out money.
A negative interest rate forces money to circulate and it encourages you to pay off debts. Thereby it eliminates both inflation and deflation.