Hacker News Reader

Comment by henvic | Hacker News Reader

Inflation hits hardest the poorer who doesn't have diversified savings or their wealth in properties, stocks, or anything else that is likely to at least hold value.

Inflation basically steals wealth from everyone – especially the poorest that makes the mistake of saving cash – and gives the money to the richest friendly with state powers. It's unethical and a crime against humanity, even more so considering that the fiat currency people are forced to use is legal tender, and you cannot exchange your earnings in other more stable currencies legally in most jurisdiction with this doutrine (almost all).

https://wtfhappenedin1971.com/

View on HN

That's not the case at all. All this "gold standart" stuff and BTCs claim is to preserve wealth and poor people by definition don't have wealth.

Let me tell you how poor's life looks like when things are alright: You have a job that is good enough to cover your rent, your food, your bills and the instalments of your phone and computer and you might put aside a little bit that at some time in the future you might use to pay the downpayment of an apartment or a car.

When there's a steep inflation, be it anything from Turkey level to Venezuela level inflation, your salary gets adjusted to sustain your lifestyle and you put your money in Gold/USD/EUR/GBP/AnythingMoreStable or property.

That's it. Poor don't get any poorer just because of inflation. If anything, if the inflation has accelerated the disposable amount of your salary increases in real terms since your loan payments remain the same most of the time. The lender usually incorporates this into the rates but every now and then the inflation can be beyond the expected and you may end up paying much less in real terms.

When the things are not alright, the inflation is irrelevant to you. Whatever little you have, you are going to spend it before any meaningful impact due inflation. Next time you get money, you will get more to match the increase in the prices.

How do I know? I have been there. I've seen an inflation where you cannot predict the price of the bread tomorrow and I have seen a stable inflation where you simply incorporate it into your calculation and you are fine. I've lived in 2 two countries that dropped 0's from their currency, one dropped 000, the other dropped 000,000.

The inflation bites when it is unstable and unpredictable. Then businesses cannot incorporate the inflation into their cash flow and the economy slows down due to risk and difficulties of doing business. That's when the poor are impacted hard because that's when they loose jobs and switch to "things are not alright" mode.

>your salary gets adjusted to sustain your lifestyle

Wait, did I miss the application for this or something?

>and you put your money in Gold/USD/EUR/GBP/AnythingMoreStable or property.

Unless it's illegal.

> if the inflation has accelerated the disposable amount of your salary increases in real terms since your loan payments remain the same most of the time.

So you have a choice: 1. Take a leap of faith your income will get adjusted to real inflation numbers and take a loan hoping it will get eaten by inflation, at the same time increasing the debt pressure on your income and your psyche. 2. Not taking a loan so having no instrument to even partly negate the effect of inflation and having no adequate alternative instruments to loans/mortgages to save the value of your income.

>Unless it's illegal.

If it's illegal that's not inflation's problem. You probably have dictatorship/controlled market problem. In any case, if there's a problem with the legal free market you use street vendors. That's how it's been done everywhere since ever.

You take a leap of faith that you will have this income for the foreseeable feature, why wouldn't you take a leap of faith that it going to be adjusted to fair market value?

If the economy is alright, you simply get paid you fair market compensation. When there's an inflation, you get adjustment.

Don't forget that inflation is not only for the chocolates and candies in the shop but also for the resources that businesses use and one of this resource is human resource, which means salaries are going up.

You don't think that at 20% of inflation businesses will end up with practically slave labour in few years, don't you? Salaries are always adjusted to meet the inflation. That's not because the businesses feel altruistic, it's because in a free market unadjusted prices create an arbitrage. If your salary is not adjusted, you go work somewhere else. Your unadjusted salary is some businessmen's opportunity to have you at no extra real terms cost(normally they would have offered you more of what you ear currently, now they can transfer you by simply giving you a fair market salary).

> Salaries are always adjusted to meet the inflation

This does not agree with the policy reason for inflation, which is explicitly to give labor class a silent pay cut:

https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...

You missed the part about the economy doing fine. Anyway, salaries don’t stay static because people are not static - they age and get seniority, change jobs, get promoted, get redundant because technology and market changes etc.

It’s probably not the inflation that is eating in the wages in many cases. A lot of wages moved from established professions to software developers or moved from deindustrializing countries to China and so on. %1-%2 inflation is a noise regarding to changes in salaries. My grandfathers income from his profession did not perish due to the inflation but because of the proliferation of sneakers and cultural change that made sporty shoes acceptable in workplaces.

It's a "pay cut" to less productive work and a pay raise to more productive work.

> When there's a steep inflation, be it anything from Turkey level to Venezuela level inflation, your salary gets adjusted to sustain your lifestyle

Only at the lowest levels, where it has no relation to economics anyway: most governments will work to ensure that poor who have nothing to lose will not be pushed into long-term hunger; if they do, they revolt. So either the costs of the food and barebones medical care (broken bones, etc.) will be subsidized for them or the money will be bumped up.

There is a second group where this adjustment is likely to happen: Army and government workers. If you starve those, you quickly feel it. Everyone else gets to fend for themselves and is usually much, much worse off. I have also lived in a country going through hyperinflation and unless one is in a select group (likely linked to organized crime) one definitely does not get salary adjusted to sustain the lifestyle. In fact, the lifestyle one had usually crumbles. My 2c.

You are right but probably in your case there's a second component: Economy crumbling due to political instability or something of that sort.

Extreme inflation is not the same as the inflation we see in the western countries, it is usually accompanied with some turmoil therefore the salaries do get adjusted but they get adjusted beneath the inflation as the economy gets smaller. Once the stability is achieved, you can end up with an order of magnitude higher inflation that the rich western countries but have noticeable increase from year to year in terns of quality of life and access to import goods.

Probably my claims don't cover any case of hyperinflation because that always comes with other problems too, therefore you probably don't have a healthy economy in hyperinflation.

The poor don't have savings in cash. Inflation loss on a nonexistent savings account is virtually zero.

If you are concerned about this, would you be okay with a direct payment to populations without enough money to save in equities? That'd fix the problem.

The poor may have some cash, if only $100 in the bank. They certainly have no bonds, stocks, or real estate.

If they have no cash and only draw a salary, it will still hit them badly, as salaries are not inflation adjusted, and any pay increase requires negotiations with the employer - who may decide to increase the wage by only a fraction of the inflation.

Said differently: all people who don't have wealth in inflation proof assets (stocks, real estate etc) suffer from inflation.

Great. Let's make minimum wage automatically adjust to inflation, force businesses to provide CoL increases, and provide a tax credit for the poor against savings loss.

In my experience, the libertarian community that hates inflation so much uses the poor as a rhetorical cudgel rather than an actual primary concern.

> Said differently: all people who don't have wealth in inflation proof assets (stocks, real estate etc) suffer from inflation.

Except those who are in debt

inflation is typically priced into interest rates. unexpected changes in inflation can benefit either creditors or debtors, but a constant rate of inflation is a non-factor.

annual losses from inflation on $100 are pretty trivial though, somewhere around $3/yr. the stickiness of wages is the bigger issue for the poor re inflation.

also people with assets are not totally protected from inflation. suppose I bought a $10k asset in 2001 that, for whatever reason, perfectly tracked inflation. if I sold it today, I would owe 15% tax on a nominal gain of 50%, resulting in a real loss.

The fact that you never mention debt a single time shows me that you're pushing an agenda and not offering a full analysis.

if you insist on mentioning the debt to support your argument, you exclude and dismiss those who do everything to never live off debt. Those are not rich, they are hard working people who try desperately to bring economic stability into their families and to get into a lower middle class.

What about debt is relevant? Sure, if you’re in debt then a sense you “owe less”, in that the units you owe are now worth less. But practically speaking, if you’re an hourly or salaried employee that’s too poor to own significant securities or real estate assets and your wages don’t keep pace with inflation (wtfhappenedin1971.com), that’s a totally meaningless ivory tower economics point. You’re just further priced out of those assets, are paying more for the consumer goods you need to live that are now inflated, and you’re still paying the same dollar amount on your debt.

The fact that you are demanding him to mention debt shows you've a short-sighted view of the world, seeing only what happens close to home from what appears to be a privileged point-of-view.

Not everyone in the world has easy access to credit like you imply. You're the one pushing an agenda here.

Salaries are always adjusted to the inflation if there's a free market.

Depending on how hard is the inflation, you receive yearly, semi yearly, monthly, weekly or in extreme cases daily adjustments. Your salary updates also include the expected inflation.

That's of course when the economy is performing well. If the economy is slowing in an inflationary environment, you may easily end up on the wrong side since every update is actually a salary renegotiation and in a slowing economy your job might receive pay cuts in real terms.

I can't believe you were downvoted for saying the truth.

It's sad engineers making even $200,000 or more can't understand how even $100-1000 in the bank can change lives forever for many people in poor countries.

It's even sadder when some of them come from places that had hyper inflation, and can't see the big picture.

The point is that this is a terrible argument for "we should switch to gold" or "we should have 0% inflation". Losing $2-$20 to inflation annually is trivially handled with tax credits or whatever.

You definitely have no idea about what you're talking about when you say that 20% inflation should be trivially handled.

$2-$20 is 2% of $100-$1000.

He's claiming that people who go into their overdraft and credit cards every month have $100 in their bank. They don't, most people live paycheck to paycheck, their bank balance just before payday is $nothing

this is definitely not true. the median US household has several thousand dollars in their checking account. they might be living paycheck-to-paycheck in the sense that their net cashflow is close to zero, but they don't have nothing in their bank account just before payday. you would have to go deep into the 20th percentile to find households like you describe.

https://www.thebalance.com/what-is-the-average-bank-account-...

> The poor don't have savings in cash. Inflation loss on a nonexistent savings account is virtually zero.

The poor are also often in debt, and inflation helps eat away at that. Especially if they can get wage increases based on the CPI.

Which is why minimum wage should (IMHO) be linked to inflation/CPI.

The minimum wage is universally zero.

Government-mandated minimum wage is effective price control, which never works. It has the effect of taking people who are not qualified to produce enough value to justify the minimum wage out of the job market. It's a mechanism to keep poor people poor.

CPI barely reflects the actual inflation of the currency. Whatever it doesn't cover in its calculation tends to get overinflated. The government designs the CPI to be low in comparison to "real" monetary inflation so that it can get away with printing more money.

This is why the raise in minimum wage should be compensated by also offering government jobs that do pay minimum wage or slightly less. Given enough time people will actually end up getting their minimum wage or even more than minimum wage.

However the talks about a $15 minimum wage actually have one very interesting detail. There are no plans for an immediate hike. It's going to be raised over time which means companies have enough time to adapt. It also sends a clear psychological signal to everyone that the times of cheap labor are going to be over because it is something that is happening year by year.

> especially the poorest that makes the mistake of saving cash

Perhaps a bit off topic, but: do the majority of the people who are not considered part of the "poorest" ones do put their savings in stocks, properties and the like?

The majority of people I know in their 20s, 30s with a decent income per month (I admit, mostly software engineers) don't do other thing than put cash in their regular bank accounts. No stocks, no properties. If any, they have a "savings account" that offer like 0.001% interests. This is in Western Europe.

If you have a steady income and significant savings (say, anything more than six months of expenses), and you haven’t invested a significant fraction of that savings in some growth-oriented asset class like stocks, you’re making a very foolish long-term decision.

I don't disagree. I just say that, in my limited life experience, most of my acquaintances do not have other thing than cash in the bank. These acquaintances are not precisely "poor".

> most of my acquaintances do not have other thing than cash in the bank

That's madness - I can't imagine why they'd do that. Their money would be rapidly eroding away.

But also - remember almost every professional has a pension, which is always invested, so yes almost every professional owns stocks and shares.

> That's madness - I can't imagine why they'd do that.

I think your confusion is in assuming that this is something you do rather than it being the status quo that receives no attention.

Up until recently I had about $80k sitting in a HYSA while interest rates on that account dropped like a rock. I only really noticed that after crunching the numbers and figuring out that was much beyond what I would realistically need. It took a few days to figure out what I could do about that given my income and employment situation.

I'm not sure how much of this applies to someone who is natively middle-class, but I find that part of the luxury of having a good income and a minimal lifestyle is just not thinking about money. If that's where your baseline is then you need some other motivation to scrutinize your finances. It comes more easily to me because I find it interesting but I can see someone without that drive just letting cash sit and being satisfied that the number looks big enough.

Here's a motivating way to think about it - if you have $100k in a bank account and you're getting 0 or next to 0 interest, you're effectively paying about $7.5k a year for that bank account in the first year, due to a guesstimate 7.5% long-term medium risk amortised investment return you missed out on.

Due to compound interest the amount you're effectively paying is going to keep going up every year. After 20 years the effective yearly fee you're paying for having that bank account is... $30k a year.

Maybe that $30k a year fee to store $100k is worth if to some people due to the government-backend security of bank deposits... but long term I think the dealer is always winning that game.

People need to learn about interest and compound interest in school.

And this is all before we even talk about inflation further eating into your pile. Money in a bank account is dead money - it'll rot away to nothing.

Can you please give some advice as to how to convert cash savings to a better yield investment? Especially in this current market where it “feels” to me (I am ignorant) that the stock market is artificially high. Maybe start to dollar cost average in to etf/mutual funds, to avoid a bad timing of “shift cash into market at an all time high right before it crashes”? Sorry for the ignorant question but the thought of cash savings eroding quickly while I don’t really know the best plan for it keeps me up at night. Cheers.

The US markets may feel artificially high to you, but a conventional modest-return, low-risk investment account that you can arrange with any high-street investment advisor is going to be extremely broad in their portfolio. The US markets that you think are inflated may comprise 5% or something of it. It'll also be invested in Asia, Africa, South America, and in different industries.

These kind of broad and boring investments always return about 5-10% or something like that a year. Occasionally they go down one year if there's a big bust up, but if you look over a ten year window it's always going up.

So why doesn't everyone invest in them if they're so dependable? Am I selling a get-rich-quick scheme? The reason is they're too modest for most people who are trying to get more like 15%. But those people take more risk - the kind of risk you're probably worried about.

And so why does the bank pay so little interest? Well they're getting that 5-10% from similar modest-return, low-risk investments (well probably a bit less less as they're more cautious)... and pocketing it.

I would recommend you to form a habit of putting some money into investments every month, not because of DCA or whatever investment strategy is the best, no simply because starting small and growing incrementally is a tried and true strategy for everything in life. If things go wrong you can always quit.

Since you will have to pay for housing in [local currency], and I'd usually prioritise housing higher than optimally growing wealth, I'd suggest you first hold enough cash to pay for housing as far as you need it - probably a lot longer than 6 months.

Your advice is fine advice, if you already own your housing and have savings on top of that, which many or most people don't.

The equities and real estate markets don’t exactly look appealing right now; I can either watch inflation slowly eat at savings while waiting for better market conditions, or potentially watch a significant portion of net worth evaporate when a mega correction occurs - which is looking very likely.

If your cash position is a one-time thing that’s fine I guess, but if you’ve been saying that for a few years (most people in that position do, not saying it’s you) then you’ve been losing a lot.

I’ve been constantly invested in index funds for 10+ years, never sold a position, including before/after March 2020. Some positions I have are up more than 200%. A crash of 50% won’t do me too much damage, I’ll still be way, way far ahead of the many friends I have who have been in cash since 2015, repeating your same “a correction is likely, I’ll wait for the bottom to get in”.

I have a similar approach: I typically have ~60% of net worth invested across index funds and tech growth stocks. But I’ve been building my cash position in recent months mostly via sale of said index funds and growth stocks (I was able to dodge the downturn in tech stocks in recent weeks), but also by simply banking funds that would otherwise have been put directly into equities. Now I’m reluctant to reinvest as I see significant risk in the market short term. I don’t intend to remain on the sidelines.

I’m beginning to question the maxim that “you can’t time the market”... sure, you’re unlikely to time the exact top or bottom, but an approximation can result in significant risk reduction and/or upside.

You sound like a surfer who is watching big waves at the shore and is waiting for "the right moment", but at any moment it's either too shallow for the surf board, or there's a big scary wave that's about to collapse.

The best time to start is today but you should never put all your money into something you don't understand. Start small and grow from there. You'll probably change your mind along the way.

> If you have a steady income and significant savings

Only the richest have 6 months expenses in savings. Majority live paycheck-to-paycheck

It depends on the culture. I also live in western Europe and in my community even the literally illiterate shepherds that I grew up amongst, have their money in stocks and bonds or intermediary funds.

Right now it doesn’t seem like a great time to invest. Although that’s been true for 4 years. In some sense it would be good if the powers that be would allow a market correction.

I think by most estimates the poorest half of the population have negative wealth, if that is true then inflation actually reduces their debt.

Unfortunately higher inflation comes with higher interest rates. So if you have "negative wealth" you are no better off.

Not necessarily. You've to analyze where your wealth goes to and where does the money goes to.

Even if you're one of the ones who benefit from 'getting the money first' (like, if you mortgaged a house with low interest rates) there might be nefarious consequences.

For example, right now I'm looking into buying a house through a mortgage that with less than 2% yearly interest. I'm going to pay the house in about 30 years if I never change the conditions of the agreement, and I can have 10 years guaranteed low interest rates. So you might believe I should be completely happy with inflation... Except what you don't see is the effect the inflation has in the overall economy, and also more immediately on my pocket.

The house is going to be about 5 years of my current gross yearly salary. If there wasn't this artificial easy credit through inflation, I could probably pay a lot less for the house and maybe even decide to continue renting instead because perhaps renting would be cheaper if people weren't holding properties to speculate and I had more money in general. Anyway, it's still a 25 years difference where I'm going to be losing a lot of money to inflation.

I highly recommend this: http://bastiat.org/en/twisatwins.html

The poorest have a negative net worth, so inflation reduces their debt.

The next lot have some wealth in property and pensions. Property especially benefits from inflation as the remaining mortgage reduces as a %age

Now sue, if inflation is high and wages don't increase with inflation that does effect the poorest, but the poorest are screwed anyway.

Median savings account levels based on earnings:

    Bottom 20% of earners: $600
    20th to 39.9th percentile: $1,700
    40th to 59.9th percentile: $3,800
    60th to 79.9th percentile: $8,200
    80th to 89.9th percentile: $18,700
    Top 10% of earners: $62,000

> The poorest have a negative net worth, so inflation reduces their debt

Yes, and it helps those who got into debt some time in the past, and without this debt have a positive cash flow today; for example a graduate making good salary but saddled with old student loans.

But I think (although not 100% sure) most poorer people in debt do not have a positive cash flow even when not counting debt payment. They are getting deeper into debt because they spend more than they get. And inflation will probably push those people deeper into the hole: they are on bare essentials (cannot cut those; and they are getting more expensive), and their jobs are more likely to be cut.

Richer folks by comparison have many options to hedge against inflation, from property sprinkled around the world to commodities, precious metals in cold storage, inflation-resistant stocks, etc. My 2c.

The poor can only take high premium inflation adjusted loans. Inflation doesn't reduce the burden. The poor would generally make minimum wage ($7.25 in the US for about 15-20 years now). Same people who say there is no inflation call this "a starvation wage" never making the link between printing money and the wages pushing poor people into starvation. The poor spend most of their money on housing, food, medical and energy. All of which are massively up (6% up YoY average last week). Food and energy of course are ignored in headline inflation as a rule.

Only if you consider the poorest living in a mortgaged house that costs $800,000 with $720,000 left to pay while making $120,000 a year.

This is not valid for the poor people making $15,000 a year with $600 in their bank account. These people are losing a lot of wealth.

Debt is not that easily accessed by everyone! And when it comes at the cost of inflation as it often (or even almost always!) does, it's even worse.

They aren't losing a lot of wealth, they don't have it.

What you say doesn't make any sense. For someone poor with $50 of savings, if they lose $5 it might not seem much to you, but it might be to them. It actually is a lot of money if you're considering someone really poor, especially in poorer countries.

I assume you're probably in the US and think that making money is as easy as it is for most people there everywhere. No, it is not easy for everyone, and not everyone lives in the US.

Reply on news.ycombinator.com