alt Hacker NewsInflation is an extreme handout to the wealthy.
Money is by definition zero sum, otherwise the word "inflation" would have no meaning. There are good questions around what an over leveraged loan is, but fundamentally, the supply of money is to some degree fixed at any given moment.
The wealthy and powerful keep their money in tax benefited, inflation tracking assets. Many of those assets are stocks, and a major business cost is labor. Wages are generally not inflation tracking. That amplifies the benefit of inflation to the wealthy. So the buying power lost by suppressed wages and devalued savings, as well as the devaluing of all money currently in flight such as paychecks, is exactly gained by those with wealth/ownership. Inflation also makes loan's cheaper to pay off, further benefiting those with enough assets to get a loan.
When the market stagnates or companies freeze hiring or do mass layoffs, it puts employees in an even worse negotiating position resulting in even more suppressed wages past the first order effect of inflation.
So what's even better for the rich than tax breaks is inflation.
The fed is the beating heart of the economy, it pumps money through its sluices.
The fed is in many ways the Balrog deep in Moria.
Oligarchs do answer to other oligarchs, even if they don't answer to law, and there's a good chance that many of them see the impending potential disaster of either stagflation -- people won't have enough money to buy goods and the economy stalls and maybe doesn't restart, or hyperinflation -- the definitive end of American hegemony as countries move to a different reserve currency and America is no longer able to fund its military. The economy is also directly tied, if not most directly tied, to the legitimacy of the ruling regime, so a policy of choosing loyalists over qualifications or letting it be corrupted by someone selling out tomorrow for today is likely to lead to actual civil unrest instead of performative civil unrest.
My guess is that the finance business oligarchs see it as a red line because the moment the fed is corrupted, it's no longer their fed, but Trump's fed, and that will be equivalent to the moment Putin gathered all of Russia's oligarchs, with one of them in a diminutive cage in a court room, and then said "half" and held out his ring with the implication of the power relationship being clear (part of the greater story of the Magnitsky act).
It's also worth noting that normally you would get capital flight once the wealthy get scared, but the US has told every foreign country that American citizens in that country are under American jurisdiction and therefore all wealth must be reported to the US government, so while in the past an oligarch might have been happy to cause civil unrest with their unchecked greed, America's deep financial reach means that many will pay a hefty price, if they are even allowed exfiltrate the majority of their fortunes at all, binding them to the outcome of fed decisions as well.
But I'm very far from an expert, so probably wrong about some of that.
Replies
> Money is by definition zero sum, otherwise the word "inflation" would have no meaning.
Not sure that I agree, nor that the one follows from the other.
Without having the advantage of an Economics degree, I have witnessed when rising tides have lifted all boats and a majority of U.S. society benefited. Perhaps "wealth" is not a zero sum.
And if that is case, talking about "money" is orthogonal. We should talk instead about disposable income, standard of living, etc.
The money supply is not zero sum. Private lenders create money when they lend and are paid back the loan with interest.
It’s also why there’a always some level of inflation: Modest inflation is a sign of a healthy economy.
But capital gains - and business income taxes in a way, given how profit is calculated - do pay an inflationary tax since they're calculated on nominal gains, so I'm not at all convinced that the wealthy don't care about inflation since it erodes their wealth.
This effect can be minimized or neutered if their assets grow in real terms, but that only works in a growing-pie world, too
Inflation is a tax on the value of money. Those who can get a return on their money best can avoid some of the tax. Those people are the wealthy.
The way I see it, the excuse for moving to a fiat currency was that the rich people owned all the gold and social mobility had stagnated, so they decided that an elastic money supply would provide some social mobility and could go towards rewarding and building up an intellectual class.
But what happened is that a small subset of elites managed to capture the flow of new fiat money, creating even more concentration. Some social mobility was made possible, but only at the behest of this tiny number of elites... And now it's looking like we're reaching the end of that cycle and social mobility is screeching to a halt... The sheer, grotesque misallocation of fiat money has become hard to ignore. The misallocation appears to be unlimited and serves political agendas. Unlike in the gold-backed era where the elites had to provide actual value to earn their scarce gold, the elite of the current era (and their hand-picked minions) got their wealth mostly through rent-seeking and monopolization of government institutions which provided access to unlimited streams of money.
So now we have no social mobility, inequality is worse than ever (and accelerating) and we have an elite class which is ill-equipped to run any kind of economy which creates value. We are in a situation even worse than the gold-backed money era. At least then, the money was in the hands of people who COULD leverage it to deliver real value out of it. People could dig themselves out of their poverty by providing value which was worth its weight in gold. It was a level playing field. The only people who had priority access to gold were those who dug it out of the ground at great risk/expense to themselves. Nowadays, there is no heuristic or logic that you can use to dig yourself out of poverty. There is no logic behind social mobility aside from social scheming; to be chosen/funded by the elite; which produces no economic value for anyone, not even the elite. They don't even know what they want anymore so they use their money to engage on wild zero-sum political manipulations; billionaires throwing huge amounts of money against each other; going mostly into the pockets of lunatic 'activists' and nothing gets done either way; all the billionaires agendas cancel out; it just creates more crazy people with money roaming around, creating intense divisions over nothing. At the end of the day, all these 'ideological' lunatics (aka experts) funded by billionaires just care about money and they're making up all kinds of nonsense arguments to justify their paychecks... Pretending that they actually care about all this stuff when really, it's all 100% about paychecks. They're literally fighting over money, using all sorts of other ideas and social agendas as pretexts.
The people who have all the money to decide the direction of our economy and society do not have the ability or even the desire to improve it to make it work efficiently in any broad sense; they are only skilled in terms of wealth concentration, not wealth creation.
At this stage, I'm convinced that the economy would work better if the government just started handing out millions of dollars of free money to everyone and let global hyperinflation happen.
> Inflation is an extreme handout to the wealthy.
Debatable.
But the opposite, deflation, hits the poor much harder.
It was deflation, the gold standard, and the insistence of balanced budgets that caused revolutions all over the world:
* https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Da...
It was dropping prices that caused ferment in the US:
* https://en.wikipedia.org/wiki/Cross_of_Gold_speech
It was FDR getting off the gold standard and balance budgets that helped the US recover:
* https://bookshop.org/p/books/the-money-makers-how-roosevelt-...
* https://www.goodreads.com/book/show/24945314-the-money-maker...
> Money is by definition zero sum, otherwise the word "inflation" would have no meaning.
I have no idea what this even means.