{"items": [{"author": "David Chudzicki", "source_link": "https://plus.google.com/106120852580068301475", "anchor": "gp-1357944704103", "service": "gp", "text": "I think the main thing is that all sorts of people have obligations etc. expressed in nominal terms. (And it doesn't look like that's going to change.)", "timestamp": 1357944704}, {"author": "William", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490313411010039", "anchor": "fb-490313411010039", "service": "fb", "text": "Ah... I've spoken to an economist at Princeton who said that, weirdly, moving to a currency where everything had 2x the monetary value *would* make a difference (in certain conditions, at least). But I can't remember why that would happen, and I don't know of any sources. Sorry!", "timestamp": "1357945040"}, {"author": "Jesse", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490313724343341", "anchor": "fb-490313724343341", "service": "fb", "text": "That's the concept of \"pure inflation\" - it mostly wouldn't matter. A few cases where it might:
- Contracts written in old dollars (e.g. loans) would get much easier to pay off (and be worth less to the lenders).
- Trade with other countries... unless the exchange rate changed exactly with inflation, may shift relative prices", "timestamp": "1357945116"}, {"author": "Chris", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490322484342465", "anchor": "fb-490322484342465", "service": "fb", "text": "Debt becomes less of an issue since your future earnings have increased with inflation, but your debt obligation (payments) stay the same. Also, it encourages people to spend rather than save because their savings, which usually don't keep pace with inflation unless they're invested in the stock market, are reducing in value with time. This keeps the consumer economy moving at a brisk pace and growing to match or exceed the growth in population. If inflation happens too quickly, though, wages can't keep pace and people cannot afford goods and services. That's why the Fed's mission is to monitor and do their best to control both employment and inflation. Generally they target 2-5% inflation annually. People who were adults in the 70s lived through one of those periods of high inflation and are deathly afraid of it happening again. That's why they dislike what the Fed is doing right now. They think it's going to result in out of control rising costs. But until employment recovers, inflation is going to be stagnant. We need another stimulus (jobs) program from the government to kickstart the economy before we start thinking about fighting inflation. There is so much more to this and it goes very deep into our economy. This is just the tip of the iceberg, I'm afraid.", "timestamp": "1357945795"}, {"author": "Phillip", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490327254341988", "anchor": "fb-490327254341988", "service": "fb", "text": "progressive tax rates", "timestamp": "1357946815"}, {"author": "Paul", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490328631008517", "anchor": "fb-490328631008517", "service": "fb", "text": "Look at Brazil's\"Plano Real\" for introducing a new currency in 1994 for an interesting take on the nature of inflation.", "timestamp": "1357947241"}, {"author": "Patrick", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490334317674615", "anchor": "fb-490334317674615", "service": "fb", "text": "doesn't it depress saving? And make it harder to negotiate long-term loans?", "timestamp": "1357948738"}, {"author": "Michael", "source_link": "https://plus.google.com/110347619670230195222", "anchor": "gp-1357955016040", "service": "gp", "text": "Intertemporal transfers; people's decisions to either save and invest, or borrow, are based on their expectations of what the inflation rate is.\u00a0 Since inflation, like the future, is never evenly distributed, assigning an adjustment for inflation to \"fix\" interest rates set in nominal terms would be an inaccurate and controversial endeavor.", "timestamp": 1357955016}, {"author": "Joshua", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490358477672199", "anchor": "fb-490358477672199", "service": "fb", "text": "If everything went up evenly, it probably wouldn't matter, but you'd have to recalculate both savings and loans to the new rate. But switching to a new currency is not the same as inflation. The real problem is that everything (except in a thought experiment) won't go up evenly. People who own real estate will do well (especially is they have a mortgage that doesn't get adjusted) and people who are on fixed incomes get hurt badly.
Instability and uncertainty about the future is bad, but a predictable moderate inflation is not bad. It will be good for some and bad for others. Runaway inflation is very bad. It is a very bad incentive if the $100 I have will buy 10 tomatoes today, but only 7 a week later.", "timestamp": "1357955180"}, {"author": "James", "source_link": "https://plus.google.com/106345404829653994850", "anchor": "gp-1357959977327", "service": "gp", "text": "Inflation happens when governments print money (or with USD, do some fancy voodoo that creates money and pretend it's not printing), and the value of the currency drops to account for the increased supply. This as a tax on certain assets: cash, checking and savings accounts, bonds, and loans all lose value.\n
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\nThe narrative surrounding economics is largely controlled by banks and institutional investors, who are the ones being taxed most (they own a lot of loans and bonds). They point to past instances of hyperinflation, which is what happens when a government tries to use this method to collect taxes comparable to or greater than the amount of money outstanding.", "timestamp": 1357959977}, {"author": "Daniel", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490386554336058", "anchor": "fb-490386554336058", "service": "fb", "text": "Along with Chris, I'm seeing a lot of the deeper consequences. For people who spend exactly as much as they make on a regular basis, it would seem to make relatively little difference, but it REALLY screws with your long-term planning. Think what would happen to all the seniors who have to live off of their savings, from before the incomes and costs rose so much. They don't have much income to be affected substantially by the rise in income (though they might get \"more\" in non-meaningful terms that don't represent buying power out of Social Security.) Their retirement accounts would not magically grow when income did, though. To an extent, this already happens -- your grandparents are spending way more for everything today than it seemed like it should cost when they were planning at your age. However, it rose in a relatively predictable way, and slowly over time, so those who did their homework about it should have figured out what they needed.
Also, though it seems like debts might be less meaningful, in the long run they probably wouldn't be -- interest rates would have to go sky-high so that bankers could still profit from loans even on top of inflation.
It's also true that a currency switch (such as your \"deci-dollars\") is NOT equivalent to sudden or runaway inflation. If we suddenly switched to a new currency worth a tenth as much, then not only would wages and prices be ten times higher in the new currency, but savings and debts would also be ten times higher. This has some potential to affect the economy because the same price, or the same income, in real terms might not be the same price or income in psychological terms. However, on the whole it probably wouldn't make a big difference. If the inflation happened that suddenly, fixed things like savings and debts would both be dramatically reduced relative to costs, which punishes those who make the longest-term plans with their money.
There's certainly a lot more to be covered, but it's not nearly as simple as it seems like it should be. Inflation is never as even-handed as we like to think.", "timestamp": "1357961411"}, {"author": "Rick", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490487847659262", "anchor": "fb-490487847659262", "service": "fb", "text": "Switching from the various European currencies to the Euro had something of the effect you're talking about. For example, in Italy, when the Euro was introduced, the conversion rate was 1,936.27 lire to the euro. I don't think lopping off the extra zeros had much effect, since everything (wages, prices, debt, real-estate value) all changed by the same amount at the same time. In real-life, inflation doesn't work that way. One thing that I've always wondered about is what would happen if you had a currency pegged to the Consumer Price Index (CPI), or something similar but more accurate. Perhaps this would be the cost of a \"bundle\" of goods and services, including the expenses of a typical American. Again, if everything, including savings, debt and property values was pegged to the CPI, there would be no inflation, and things would be more predictable, which I think is good for the economy. I expect there's something wrong with this idea, so maybe someone can explain to me what the problem would be.", "timestamp": "1357982540"}, {"author": "Jeff Kaufman", "source_link": "https://plus.google.com/103013777355236494008", "anchor": "gp-1357994298805", "service": "gp", "text": "@James\n\u00a0\"cash, checking and savings accounts, bonds, and loans all lose value\"\n
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\nI see why cash loses value, but couldn't the others all be designed to adjust rates based on inflation? \u00a0All bonds would be like TIPS, all mortgages would be ARMs, ...\n
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\n(ARMs are not based on inflation but interest rates, but those should move pretty similarly. \u00a0If I expect a dollar next year to be worth ninety cents then I'll charge enough interest to make lending it out worthwhile.)", "timestamp": 1357994298}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490543454320368", "anchor": "fb-490543454320368", "service": "fb", "text": "@Richard: \"currency pegged to the Consumer Price Index\"
How do you peg to the CPI? By letting people trade one unit for a fixed basket of goods?", "timestamp": "1357994877"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490544577653589", "anchor": "fb-490544577653589", "service": "fb", "text": "@Chris: \"your debt obligation (payments) stay the same\"
What if we switched to a system where all debt was adjustable-rates? My understanding is that the interest rate and inflation rate pretty much track each other.", "timestamp": "1357994989"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490545974320116", "anchor": "fb-490545974320116", "service": "fb", "text": "@Joshua: \"It is a very bad incentive if the $100 I have will buy 10 tomatoes today, but only 7 a week later.\"
If we all had easy access to bank accounts that paid interest sufficient to compensate for inflation that wouldn't be a problem. You wouldn't want to carry around cash, and a bunch of simplifying assumptions go away (short term debt often has no interest rate at all) but it seems like it could work fine. Work fine now that we have computerized most things.", "timestamp": "1357995139"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490546434320070", "anchor": "fb-490546434320070", "service": "fb", "text": "@Daniel: \"seniors who have to live off of their savings\"
Wouldn't the interest paid in savings accounts be higher? Even if not, people could invest in TIPS or something similar.", "timestamp": "1357995309"}, {"author": "Rick", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=490585837649463", "anchor": "fb-490585837649463", "service": "fb", "text": "Jeff, the way I picture it, my idea would be as follows: Take the typical expenses a family has for a year, including food, shelter, entertainment, travel, etc. Divide that by some number to get a reasonable sized currency, and re-value it once or twice per year. That would be your currency. Perhaps the amount of it available should be proportional to the GDP, but I'm not sure about that part.", "timestamp": "1358003236"}, {"author": "James", "source_link": "https://plus.google.com/106345404829653994850", "anchor": "gp-1358005117144", "service": "gp", "text": ">\u00a0I see why cash loses value, but couldn't the others all be designed to adjust rates based on inflation? \u00a0All bonds would be like TIPS, all mortgages would be ARMs, ...\n
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\nYou could, but that doesn't get rid of the effect of the inflation \u00a0tax, it only moves the burden to the other party (from the loaner to the loanee).", "timestamp": 1358005117}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=491070247601022", "anchor": "fb-491070247601022", "service": "fb", "text": "@Richard: \"That would be your currency.\"
That's the problematic step. How do you just say \"my currency is worth X\"?", "timestamp": "1358111685"}, {"author": "Jeff Kaufman", "source_link": "https://plus.google.com/103013777355236494008", "anchor": "gp-1358112126047", "service": "gp", "text": "@James\n\u00a0\"it only moves the burden to the other party (from the loaner to the loanee)\"\n
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\nReally? \u00a0Let's say we currently have 100% annual inflation, prices doubling every year. \u00a0You have cash, I want to buy a house. \u00a0So you loan your cash to me at 103% annual interest, which is a real interest rate of 3%. \u00a0Perhaps this comes to a monthly payment of 1/8th of my salary. \u00a0My salary goes up with inflation, so I keep paying you 1/8th of my salary, until I own the house. \u00a0Who did the burden (tax) of inflation fall on?", "timestamp": 1358112126}, {"author": "Julia", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=491135050927875", "anchor": "fb-491135050927875", "service": "fb", "text": "Rick What counts as typical family expenses has changed a lot over time - 50 years ago a typical family maybe had one car instead of 2, one phone line, no cable, cheaper car travel but less air travel, etc.", "timestamp": "1358125682"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/490309254343788?comment_id=491137904260923", "anchor": "fb-491137904260923", "service": "fb", "text": "@Julia: calculating inflation hard, but we have something that's pretty good http://en.wikipedia.org/wiki/Inflation#Measures", "timestamp": "1358126361"}, {"author": "James", "source_link": "https://plus.google.com/106345404829653994850", "anchor": "gp-1358166891280", "service": "gp", "text": ">\u00a0Who did the burden (tax) of inflation fall on?\n
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\nYou're right, I was confused; neither side of an ARM is affected by inflation.", "timestamp": 1358166891}]}