However, a bit incorrect in the macro economic analysis. Inflation is a tax on the poor. No. If the low income wages go up by more than the CPI, the poor are definitely happy with inflation. As long as earnings of an individual rise faster than CPI, that individual is just fine. Wealth is only second order (wages are re-set usually annually, other sources of income more frequently).
Inflation is much more a tax on the (fix rate) lenders to the benefit of the (fixed rate) borrower.
The largest fixed rate borrower is, indeed, the US treasury; but all the fixed mortgage rate borrowers (e.g. farmers) will also be happy. And the largest lenders are pension fund, insurance companies, sovereign funds and such. Fixed rate mortgage lenders are going to loose as well.
Regarding the cause of inflation, I would personally say this is mainly due to the virus. Thus, bottleneck in the supply chain, great resignation, child care issue, energy prices... And none of these are going away anytime soon, so I fully agree that this is not transitory.
Appreciate the feedback and thoughts David. I’m with you that the borrower that has locked in debt at low levels is the winner during persistent inflation. Creditors (banks) are hurt as the debt servicing payments they receive from borrowers provide less purchasing power as inflation increases.
However, as you noted, this assumes that everyone gets raises in line with inflation, which we know is not necessarily true. In my opinion, the primary reason inflation taxes the poor the most, is that they do not own financial assets. Almost everyone suffers from inflation (except the issuer of the currency). But if you own financial assets, you can offset losses in your purchasing power for real goods with your capital gains (which hopefully are outpacing inflation). Furthermore, if you are low or middle class, you probably rent and therefore have no control over a large portion of your living costs increasing. And if you have been saving to buy a home or to invest in stocks, well, that just got a lot harder for you.
It's also important to note that everyone’s inflation is different. This is dependent on where you live, where you shop, what you eat, your commute, etc etc. Definitely a complex issue.
Regarding your note about low-income wages – Turkey just raised their minimum wage 50% in response to rapidly rising prices in the country. This will be an interesting case to follow to see how things shake out.
As always, we’ll written and presented. I agree with your assessments- particularly in regards to inflation. I’ve thought, ‘what the heck is “transitory “? What does it truly mean? I think it manufactured self-serving FED-speak gibberish!
Well written - true.
However, a bit incorrect in the macro economic analysis. Inflation is a tax on the poor. No. If the low income wages go up by more than the CPI, the poor are definitely happy with inflation. As long as earnings of an individual rise faster than CPI, that individual is just fine. Wealth is only second order (wages are re-set usually annually, other sources of income more frequently).
Inflation is much more a tax on the (fix rate) lenders to the benefit of the (fixed rate) borrower.
The largest fixed rate borrower is, indeed, the US treasury; but all the fixed mortgage rate borrowers (e.g. farmers) will also be happy. And the largest lenders are pension fund, insurance companies, sovereign funds and such. Fixed rate mortgage lenders are going to loose as well.
Regarding the cause of inflation, I would personally say this is mainly due to the virus. Thus, bottleneck in the supply chain, great resignation, child care issue, energy prices... And none of these are going away anytime soon, so I fully agree that this is not transitory.
By the way, I don't mind the libertarian view.
Appreciate the feedback and thoughts David. I’m with you that the borrower that has locked in debt at low levels is the winner during persistent inflation. Creditors (banks) are hurt as the debt servicing payments they receive from borrowers provide less purchasing power as inflation increases.
However, as you noted, this assumes that everyone gets raises in line with inflation, which we know is not necessarily true. In my opinion, the primary reason inflation taxes the poor the most, is that they do not own financial assets. Almost everyone suffers from inflation (except the issuer of the currency). But if you own financial assets, you can offset losses in your purchasing power for real goods with your capital gains (which hopefully are outpacing inflation). Furthermore, if you are low or middle class, you probably rent and therefore have no control over a large portion of your living costs increasing. And if you have been saving to buy a home or to invest in stocks, well, that just got a lot harder for you.
It's also important to note that everyone’s inflation is different. This is dependent on where you live, where you shop, what you eat, your commute, etc etc. Definitely a complex issue.
Regarding your note about low-income wages – Turkey just raised their minimum wage 50% in response to rapidly rising prices in the country. This will be an interesting case to follow to see how things shake out.
As always, we’ll written and presented. I agree with your assessments- particularly in regards to inflation. I’ve thought, ‘what the heck is “transitory “? What does it truly mean? I think it manufactured self-serving FED-speak gibberish!
Thanks Brad. Will be interesting to see how things shake out! We’re mixing quite the cocktail in the economy right now.