Comment by dantheman | Hacker News Reader

Comment by dantheman | Hacker News Reader

People will always move their money into the places that give the best return over a few years, no matter how many times they are warned with the disclaimer that "past performance is no indication of future returns." And eventually the crisis that results will reach global dimensions beyond the means of a government bailout, especially if part of the risk managing strategy becomes counting on bailouts happening every decade or so.

The only solution is to forbid money management as we know it.

There are a lot of assumptions, first and foremost that all investors are trying to maximize their returns with no regards to risk. I know many people who choose investments that are less risky and thus have less of an interest rate.

People always look at money management from the investment side (ie, what is my return) and don't think about what is actually going on... ie funding new ideas/projects, if you outlaw money management then drastically alter the way that people can get funding -- greatly increasing the misallocation of capital.

A better solution would be to tell people to research what they're investing in, if it doesn't look right or you can't understand it don't invest in it.

> A better solution would be to tell people to research what they're investing in, if it doesn't look right or you can't understand it don't invest in it.

Unfortunately for most people, that's almost everything.

If we didn't have an monetary policy of inflation, merely depositing money in a savings account would be a viable option.

I don't see that to be true. There are plenty of low-risk, low reward options out there if all you want to do is preserve your value.

Inflation has its own issues, but as I see it they are mostly social class related.

> There are plenty of low-risk, low reward options out there if all you want to do is preserve your value.

No there aren't. To preserve real purchasing power monetary inflation FORCES you to speculate. Straightforward saving has been a loser's game for many decades now. This was not always true and there were long periods of price deflation and good interest rates before the establishment of the fed.

Straightforward saving has been a loser's game for many decades now.

18% interest was a loser's game? http://www.hsh.com/indices/6mocd80s.html Even as recently as 1989, CD rates were over 10%. In 2000, they were over 7%, and in 2007, they were over 5%. http://www.hsh.com/indices/6mocd00s.html

Yes, and go look at annualized monthly CPI increases during those periods.

Annualized monthly CPI increases were over 18% for 6-month stretches? How about 5 years? There are 5-year CD's. From 1980 to 1985, the CPI went up only 30.6%. http://cost.jsc.nasa.gov/inflateCPI.html From 1989 to 1994, the CPI went up only 19.5%. From 2000 to 2004 (as late as that calculator goes), the CPI went up only 9.7%.

Right now, America, and the world, are experiencing deflation. Yet, 6-month CD's are paying over 2% interest.

A few quarters here and there with decent real CD rates is not reflective of how people actually go about saving. You have consistently lost purchasing power if you plowed cash into savings accounts, CDs, and money markets funds.

When all factors are considered, including understated CPI figures, I believe real returns to cash in the period in the 80s you point to were not even very good. Especially when you consider the opportunity cost of your five year CD and what played out in other asset classes during that five years.

Especially when you consider the opportunity cost of your five year CD and what played out in other asset classes during that five years.

What other zero-risk asset classes were we comparing against?

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