It's not the case, but people keep wringing their hands about how inflation robs the poor of the ~$500 they have in their savings accounts, while ignoring how much it helps the middle-class mortgage owner who is in fixed-rate debt for a million dollars.
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).
But you're missing the bigger picture: the rich who issues mortgages (or more likely, has stake in a real estate company) is having their wealth transferred to the lender. Most wealthy people loan more than they owe. If you owe more than to loan out then by definitely you're not wealthy, your net worth is negative. Similarly, a poor person who owes $20,000 on an auto loan, whose car is now worth $25,000 just saw a significant gain.
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.
You're right that the banking system is a little more complicated than I made it out to be, but let's ignore that for now. You agree that the majority of the fortune 50 is holds more debt than credit, right?
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.
> You agree that the majority of the fortune 50 is holds more debt than credit, right?
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.
Thanks for the detailed reply, we're really getting into the meat of it here in this debate.
"has hundreds of billions its loaning out because it has nothing better to do with its excess cash "
That's not really being a creditor if you're investing in something that doesn't cap the upside. Likely apple's fund is investing into companies that will benefit from inflation, and if in my contrived example the money supply doubles their valuation in said company doubles.
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?
By proxy through being invested in corporations that themselves take out debt to invest in money making ventures.
>Sort of? Banks don't get to regulate currency supply, the Fed does.
Banks ARE the Fed! The local federal reserve banks aren't themselves buying assets its nationally chartered banks that are required to be part of the fed that are participating in this dance.
>If you are a multi-millionaire real estate mogul who's writing mortgage loans, then this not good for you.
Most multi-millionaire real estate moguls who are writing mortgage loans know this, which is why they sell them to the federal government or other government institutions.
> 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?
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?
Your contrived example very conveniently excludes what inflation buys (Infrastructure, public spending)[1], and also who pays for the majority of it (The lender - who happens to be neither of the two people in your example.)
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
Yes I did this on purpose because you seemed to misunderstand some very basics of economics. That poor folks holding cash has wealth indirectly transferred to debtors who are leveraged into assets is not a controversial economic theory. It's fucking basic math.
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.
You're still missing the part where its not poor folks who hold cash. The bottom quartile owns next to zero cash. All that an average person in that position owns is the clothes on their back, their personal effects, and maybe a shitty beater car.
The rest of your argument unravels, because you've based it on this fundamentally flawed assumption.
You seem to be all over the place, I picked $500 cash because YOU used that as an example. Do you remember? Scroll up a bit.
>The rest of your argument unravels, because you've based it on this fundamentally flawed assumption.
No, it's not flawed, it's not my argument, it's logic and economic theory that anyone without some weird learning disability can follow.
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.
All things are not equal. I know someone who was the CEO of a small hospital network.
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.
Something like 70% of the population has no savings of any kind.
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.
That's not really correct. What's correct through is that the bottom 80% don't receive enough interest to break even on interest expenses. I.e. they pay more interest than they receive back. This is the primary driver of inequality.
And this is true for everything. For housing, for stocks, for lent out money.
Deflation and inflation are bad because they make people speculate on the currency in either way. Inflation discourages paying off debt. Deflation encourages hoarding. Both of them are harmful because they create a self reinforcing feedback loop.
A negative interest rate forces money to circulate and it encourages you to pay off debts. Thereby it eliminates both inflation and deflation.
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.