For investments, it depends on the type of investment. For example, if you own bonds, the interest rate is paid based on the purchase price of the bond in pre-inflation dollars, and the higher the rate of inflation, the less your interest payments will be worth. By the time the bond matures, the amount you may have gotten back in principal and interest may be less in real dollars than what you paid for it (and you'll still need to pay taxes on the interest). Same for savings accounts: if they don't pay an interest rate that's above inflation, you'll be losing real dollars after inflation and taxes.
If you have a smaller amount of wealth, simply buying a house and investing in some index funds can be enough, maybe some short-term GICs (which will often put you on par with inflation).
Trading bonds, IMO, is best left to institutional investors.
On the other hand, if your goal is income (which is why I trade), you need to be more sophisticated, learn to time the market (to a certain degree, predicting it isn't an exact science), and to be picky...
I mean, there are counter arguments, but the idea that inflation favors the poor has been the standard, conventional wisdom for as long as I am aware, and this discussion has been going on for a long time. Read up on bimetallism (the most interesting part, I think, is the 'free silver' movement, which was the 'helicopter[1]' Bernanke of it's day.)
[1]Now, we haven't had significant inflation on Bernanke's watch, and really, he is pretty mild. I just... well, had to make a joke about free silver, and the hard money folks are awful riled at Bernanke. When Bernanke was appointed, it was thought that he would be much more aggressive than he has been. His PhD thesis focused on how to deal with the zero lower bound (which is to say, how to increase the money supply when interest rates are already at zero.) This caused some people to fear that he would cause massive inflation. He has also talked about ways to expand the money supply as the fed chairman, in which he references Friedman's "helicopter drop"
his thesis: http://dspace.mit.edu/bitstream/handle/1721.1/29839/05915220...
speech in which he makes the 'helicopter' comment: http://www.federalreserve.gov/boardDocs/speeches/2002/200211...
Inflation isn't distributed equally. When the money supply rises, firms in strong bargaining positions with few substitutes are in the best place to raise prices, because their customers can't readily switch to competitors. So basically, Google will come out of it like a bandit, because they're the only game in town for search advertising, and their auction pricing means they don't have to take any active effort to raise prices. Walmart will come out of it pretty well, since in many communities they're the only game in town. Software engineers, skilled managers, and other workers with in-demand skills will do okay. The folks competing for all the unskilled labor positions? They're going to get screwed.
So it's only partially true that the poor benefit from inflation. They'll benefit from cheaper debt payments and possibly higher employment. But they're unlikely to see much of the added money supply in wages, and they're going to take it in the chin on prices.
The theory is that inflation will decrease wages for anyone making above market wages. That's one of the mechanisms by which economists theorize that inflation stimulates the economy. Downward nominal wage rigidity, and all that.
If you are arguing that minimum wage workers are making above market wages (and that argument is supported by the evidence of the high unemployment rate) well, That's certainly a valid point. But those making $10/hr at mcdonalds? (the California minimum is $8.00 and McDonalds will pay you a little more than that after you've been there for a while.) - are those folks making market-clearing wages? I'd argue that they are.
However, the other side of this is that inflation is generally thought to increase the demand for labor in general. I mean, my personal take on it is that we have vastly more unskilled labor than we have demand for. We need more demand. More demand for labor would mean that companies wouldn't be so picky. That's the thing, companies whine about not having skilled labor, but when the economy gets hot? Companies train. I think I've written before how I got a programming/sysadmin gig when I was 17... in 1997, and how that would have been nearly impossible four years later. Meanwhile, I turned those four years into enough experience to remain employed through the crash. I became a dramatically more valuable employee during those four years, and I don't think that this increase in value is because I'm some extra special super-virtuous worker. I think most people in that situation would have become dramatically more valuable.
So yeah; I think we need to create demand. The private sector could do this by coming up with new industries (like the service sector in the '80s.) or the government could do this directly through WPA style projects. Inflation, I think, can be seen as part of an attempt by the government to stimulate the private sector into doing it. But either way, I think demand is key. Demand is the problem.
Long-term unemployment has brutal long-term consequences that are much worse than simply not earning as much for a while, because not only are you not earning while unemployed, you aren't gaining experience. You aren't becoming more valuable for your future jobs. It's bad on an individual level, but it's also bad on a macro level; there is a real reason why experienced folks get paid more. They are more productive.
Maybe in the short run, but over the long-run historical numbers don't support this assertion. Even at the lower income levels wages have historically tracked inflation, or even slightly outpaced it...
Economics is an inexact science (since markets are such fluid, dynamic things - and I don't mean stock markets), and it never assumes that individuals and firms will always make the correct decisions to take advantage of economic policy. However it is able to measure the overall benefits and downsides that economic policy has on a population at large, over the long run...
The US$ is like all the other fiat currencies in history, doomed to fail in the long run.
In the U.S. we've had positive inflation numbers for most of the last 80 years, which has coincided with significant across-the-board improvements in standard of living.
http://www.bloomberg.com/news/2012-10-02/top-1-got-93-of-inc...
- antibiotics
- health insurance
- air conditioning
- telephones
- TVs
- washing machines
- meat
- automobiles
- air travel
- medical imaging
- computers