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Comment by Guvante | Hacker News Reader

Are you saying there is something wrong with nominal inflation? 2% a year is scary when you talk big numbers like that, but the only time that money spans that large of time spans is retirement, which is invested at well over inflation even if you choose something like government guaranteed bonds.

To my knowledge the only way to lose money to inflation is to sit on cash (stupid for other reasons), have it in short term treasury bonds (which are bought by companies that have nothing to do with their flex cash), or have a bad savings account.

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Yes, it is harmful, particularly to savers. Of course, the Holy Keynesian view is that savings is bad and that we all need to be encouraged to spend.

Tell me right now where I can save and earn more than 2%. Maybe 30 year treasuries (with nominal values at 30 year highs, meaning that they have no where to go but down, further eroding savings), but certainly not in savings, a CD, or any other classic savings product. 2% compounding per year is a 22% loss in value over just 10 years. Chasing yield over that 2% per year further distorts savings and markets, and of course that 2% loss per year is good for what? It's just confiscation by the money printers to devalue future debt payments, making it seem all the easier to borrow and spend unsustainably.

But, of course, a steady 2% per year is the pipe dream of central planners and doesn't happen in real life. See, e.g., the 1970s.

Saving is not harmful nor beneficial. It all depends on what you do with your savings. If you stuff them under the mattress, saving is harmful. If you invest, then it's beneficial.

An inflationary currency promotes investment. A deflationary one promotes mattress stuffing. You may draw the conclusion yourself.

> If you stuff them under the mattress, saving is harmful.

I don't see how. Isn't this equivalent to a distributed loan to everyone who holds dollars?

It is unstable. The currency is deflationary by design and the mattress effect effectively reduces monetary mass, creating more deflationary pressure. Up until the point price drops suddenly. It is the poster example of a bubble: artificial valuation, self feeding cycle, disruptable only by change of public perception.

Milton Friedman wasn't a Keynesian, and yet he advocated monetarism, which is essentially the same as inflation targeting, except instead of keeping inflation constant, you keep the rate of increase of the money supply constant.

In academic economics, even Keynes never advocated permanently distorting the economy towards consumption and away from spending. Of course people who like government spending for other reasons will incorrectly cite Keynes to justify their position.

Real interest rates determine the saving vs consumption decision, not inflation.

See here for the arguments that real economists use to justify a 2% inflation rate

http://econfan.blogspot.com/2011/07/why-target-inflation-at-...

Small nominal inflation encourages investment, whereas deflation incentivizes people to just hold their money in the form of cash.

Of course, the other option is stability. I'm not saying that bitcoin's deflationary behavior is good, only that it challenges the accepted collective wisdom.

Treasury Inflation Protected Securities (TIPS) adjust your principal accordingly with the CPI. You also get the coupon rate.

You are always losing money to inflation. First, you always need to have cash because there is no cashless economy and you need cash to pay for everyday expenses, and that is a significant amount of money impacted by inflation.

Second, there is no serious rationale to have inflation (except to make it easy for governments to pay their debt and make everyone else poor), despite what Keynesians bring back on the table every single time without evidence (and citing the current "economist consensus" as a proof, even though they fail to realize economists were thought and raised the believe in Keynes' theory for dozens of years - hardly convincing). As another poster mentioned, even without inflation the money you have now is worth more than the money you have tomorrow, therefore there would still be time-value attached to a currency even if no inflation is there.

Inflation is punishing savers, in turn punishing investment and lowering the economic expectations.

> First, you always need to have cash because there is no cashless economy and you need cash to pay for everyday expenses, and that is a significant amount of money impacted by inflation.

How long do you hold onto your cash? I mean an actual bill. Remember inflation only impacts cash while you have a particular bit of cash.

If I hold onto $200 cash as an emergency fund, that $200 is impacted by inflation. If my wallet goes from $200 to $10 every week, then only $10 is impacted by inflation.

> Second, there is no serious rationale to have inflation

You are going to have to try much harder to debunk inflation than you are doing here. Most of the modern economic theory calls for a nominal amount of inflation (1-2%) as good for the economy. I was correlating time-value to inflation, as they are similar impactors.

> Inflation is punishing savers, in turn punishing investment and lowering the economic expectations.

Except every system I have ever seen that isn't your mattress is designed to give you inflation coverage + an ROI to compensate you for potential loss. How is that hurting savers?

The opposite of inflation is deflation, and that's much worse than inflation.

Please provide examples of the "horrors" of deflation. I am far from being convinced.

http://en.wikipedia.org/wiki/Deflation

so, the US from 160X-1900 must have been a horrifying wasteland.

> short term treasury bonds

Hold on. If those are worse than even savings accounts.. why would said companies not put their money in a normal savings account?

I do not run the fiscal policy of a huge company, so I am speculating, but here goes:

Savings accounts are considered perfectly safe due to FDIC. If you have $10 million for six months you can't do anything with but don't want to invest, Treasury Bonds are zero risk and have some kind of return. In contrast there is a minor risk that a bank could go under.

Especially when you consider that you have several accounts with a bank, and you have say $20 million in your accounts total, why add to that?

Well and the FDIC doesn't really apply here since it only covers $250k. You're right on why the treasuries are appealing though, it's basically a bank account for large amounts.

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