At its worst, 1999 to 2009, SP500 total annual return was only -0.2%, per dqdyj. Thats really good considering the upside (which has since been realized), and it shows that the government is willing to pull out all the stops if the market is down just -0.2%.
> How does the government decreasing the purchasing power help old people?
Old people are likelier to have assets and/or fixed income from assets (such as defined benefit pension funds). The government can also increase Social Security benefits quicker than wages in the market. The government also can maintain current benefits and reduce them for younger people by increasing the retirement age and adjusting the “bend points” in the benefit formula.
Of course, the poorest old people won’t benefit as much, but there’s a solid contingent of old people who do have at least real estate in their home, if not investments in the broader market that are very politically active.
> mainly from welfare and pensions but also fixed income investments since they shouldn't risk the stock market) and are the most hurt by inflation.
They shouldn’t be in fixed income for expenses needed beyond 10 years. I’d even be so bullish as to say 5 years. The demographic changes of the population pyramid flattening and turning down just started hitting economies in the 2000s. I don’t see any other way out for governments, so your goal is to tread water, you at least want to be invested in whatever the politicians are going to backstop (which is evidently not USD or fixed income, but rather equities).