Comment by zipiridu | Hacker News Reader

Comment by zipiridu | Hacker News Reader

I used to think this was definitely a bubble, but I've become less sure after reading about the amount of debt the US has and the ways it can pay it. The easiest way the US can pay its debts is through inflation. Given that, the fed will likely keep printing money. People know this and therefore put their money in things that are safer than cash, which is guaranteed to lose purchasing power over the next decade. At 2% inflation that is something like %10 over 10 years, but at current rates you could lose >50%. This is especially true in assets, which is what people with lots of money want to own. So while the price of food might only go up 10% per year, the price of assets could go up much more than that, and that is not included in CPI calculations. This is like a financial crisis but only for people who don't own assets, since they won't be able to get into the game. At least in 2008 everyone but the banks suffered, this time it might be everyone but the rich.

Of course, I could be completely wrong and I really hope I am because I was saving to buy a house. However this time things are different than previous bubbles because every asset type, even cash, is risky.

Ask any third-world country how inflation is the way to go if you want to have astronomical wealth inequality.

That's why I laugh when I see first-world born HN'ers who never have been in the 80's Israel, Brasil or Argentina to say we should just print more money to pay for UBI.

Yeah man, that's exactly what the bankers and all the other fat cats want you to believe.

Shouldn't one question the current monetary paradigm if it has such a terrible track record. Why are people doubling down on the very same system through cryptocurrency?

This derives from false pretenses, the US government can’t inflate away its debt; it gets rolled over and inflation expectations get baked into interest rates paid on debt (US treasuries are sold at auction).

Governments that borrow in their own currency reduce debt best via growth, since debt is stated in terms of GDP.

On the other hand, people who are short dollars — debtors with fixed debt — are helped by inflation. Have a mortgage, student loan payments, even car payments that aren’t linked to inflation? Then inflation does reduce your debt burden.

Inflation hurts those groups that are long monetary assets — those who own fixed debt, or cash. Its effects on other asset prices, like stocks, are less direct. For example, stock prices reflect changes in growth in the economy that may be hindered by high inflation (or high interest rates).

Simple models are great except when they’re wrong.

Note, inflation also hurts those on fixed income — people whose income is set at a fixed rate, like pensioners or retirees collecting social security.

> the US government can’t inflate away its debt

Of course it can. if the government "owes" $20T, it could simply print a $20T note and pay off its creditors.

For over 10 years interest rates people pay for US debt has been below inflation. Why do you think they can't inflate away the debt when the last 10 years shows that happening?

I don't know what you mean. Inflation has been incredibly low in the past 10 years meanwhile debt has to structurally go up every year because the global economy needs more dollars.

> I was saving to buy a house.

People really need a house price ETF for this - that is, a financial instrument whose value tracks house prices but can be bought for units less than one house.

There are REITs you can buy.

For example, check out VGSLX.

There's your story, why this time, it's different.

This happened exactly as the poster mentioned in the 1970s. Equities, despite a 50% real drop (they were sideways through the decade) did not experience the 70% loss that cash did.

Today multinationals are much more well... multinational, and they're currency-hedged better than they were then. This allows them to avoid much of the inflationary pain of a single currency.

Countries have been inflating their way out of bubbles for thousands of years at the expense of the currency. Acting as if that either hasn't happened many times prior or can't happen again is an article of faith

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