Please help me to understand, why inflation is bad?

[seasideheights]

As overall inflation eats away at spending power, you have to make more per day, trading than before to maintain your lifestyle. I don't like that.

 

[rros]

I lived through one ocurrance of hyperinflation, another close call and several periods of very high inflation and can answer this with confidence.

Aside from the technical problems described by members earlier the worst consequence brought about by very high inflation happens when it becomes ingrained in people's mind. Then, it creates chaos and it becomes immoral as all agents involved set their own prices whenever they feel like it and look to maximize just one-time-gains without giving any consideration to building a business for the future. All become scavengers. The direct impact for the consumer is a continous deterioration in service, quality and sizes of products, etc. People feel robbed and stop believing.

And... good luck with changing people's expectations back.

 

[luckybastard]

Quote from Daal:

he earned interest on that.

Of course. But the TS said that if somebody flashed forwared from 1930 to 2008, applying 1000% inflation, he'd not be depressed because now he could buy a nice car and nice cell phone. So the point is of course, if inflation is (way) higher than the interest rates, you're going to get screwed.

 

[Madison]

Quote from Daal:

he earned interest on that. the 'dollar value is .5 cents today' guys never mention that the money could have been invested

Savings represents a store of past work; currency devaluation represents a destruction of that stored work. More specifically, currency devaluation is a theft of that work by politicians overspending in the short term for their own benefit, and is a net disincentive for society to save. A society without net savings cannot advance in the long term, despite what the keynesians and cheneyites would have you believe.

 

[Sandybestdog]

Inflation is the way the Man sticks it to the little guy. Wages never go up the same rate as inflation. If inflation is 5% and your paycheck only goes up 2% (or nothing at all for a lot of people) you got screwed 3%. Multiply that by 30 years and all of a sudden you have a middle class that is being wiped out and a lower class that has very little chance of suceeding.

The rich like inflation. Yes their cost of living goes up, but they are hedged through stocks, real estate, commodities, etc. Who cares if your energy bills go up 25% in a year, you’ll make 25% on a million dollar portfolio.

Don’t forget that not only is inflation a tax, but you have to pay taxes on the tax. If you put $100 in the bank to hedge against, you will earn interest. But the interest went to pay for the inflation. Now, on top of that, you have to pay taxes on the interest that you earned hedging against the inflation.

And people wonder why we are a nation of debt. Sleep in your car or hit up the credit card to pay for rent?

Want a better job? They say you have to go to school to get that. That will cost you 25k a year for the next 4 years. How are you gonna pay for it? That’s ok, take out a loan.

 

[tradersboredom]

only people who are afraid of inflation of people holding cash paying 3% or 1% returns.

any asset can give 5% on the long term even real estate in the long term or 10 year gives 7%.

inflation destroys wealth if you are in cash. as fro the bubble, real estate is still expensive if incomes levels don't rise.

the $500,000 house or condo is cheap if annual average income for individuals in the country is $100,00/year. or household income is $300,000

problem with real estate bubble was excessive leveraging and lending and specualtion and no downpayments .

Quote from freewilly:

Why is inflation so bad?

Somehow I feel inflation is actually the only solution to pull us out of the mess.

From 1930 to now, what is the inflation? I am going to make it up here, so 10X (or 1000%). Just imagine if you lived in 1930, and fast forward to 2008. When you wake up in the morning, you were stunned that inflation went to to roof, 1000%. However, you also realize that have much better living standard, 2 or 3 cars in each family, and every car is much better than those made in 1930s, you heard about PC, internet, cell phone, many many more. Do you still care that you just had a 1000% inflation. Why does it r eally matter to you?

I mean, why everybody is so afraid of inflation? Sure everything will be more expensive, but do not forget you will get much fatter pay check as well. You will not lose your buying power.

We are having a huge housing bubble, and that housing bubble should create a big inflation, but we haven't seen it yet because people artificially keep it down. This is not healthy. A big housing bubble need a big infaltion.

Now, we have a big housing bubble. How are we going to solve the problem? One way is to let the housing price go down, but you know what that means, foreclosure goes to teh roof, and banks go bankuptcy, teh financial system collapsed.

Anther way is to create a big inflation. Everything goes up, including your pay check, but the housing prices remains the same. Then bank can still keep the money moving. Nobody is going to lose anything.

 

[tradersboredom]

nobody like real inflation including the rich but inflation is a reality in the long term if yo uare in cash.

majority of people don't hold cash. most of peoples wealth is in their house.
and don't forget most people are in debt.

inflation also destroys the the long term debt.

Quote from Sandybestdog:

Inflation is the way the Man sticks it to the little guy. Wages never go up the same rate as inflation. If inflation is 5% and your paycheck only goes up 2% (or nothing at all for a lot of people) you got screwed 3%. Multiply that by 30 years and all of a sudden you have a middle class that is being wiped out and a lower class that has very little chance of suceeding.

The rich like inflation. Yes their cost of living goes up, but they are hedged through stocks, real estate, commodities, etc. Who cares if your energy bills go up 25% in a year, you’ll make 25% on a million dollar portfolio.

Don’t forget that not only is inflation a tax, but you have to pay taxes on the tax. If you put $100 in the bank to hedge against, you will earn interest. But the interest went to pay for the inflation. Now, on top of that, you have to pay taxes on the interest that you earned hedging against the inflation.

And people wonder why we are a nation of debt. Sleep in your car or hit up the credit card to pay for rent?

Want a better job? They say you have to go to school to get that. That will cost you 25k a year for the next 4 years. How are you gonna pay for it? That’s ok, take out a loan.

 

[TraderSystem]

An interesting thread with good posts. Learnt a lot.

As seen above, it seems to be both good and bad, maybe like "friction", which is said to be "a necessary evil", as seen from the following links:

http://en.wikipedia.org/wiki/Inflation
http://www.answers.com/inflation
http://www.investopedia.com/university/inflation/inflation1.asp
http://www.investopedia.com/university/inflation/inflation5.asp
http://www.fool.com/personal-finance/general/2006/12/13/the-misunderstood-inflation-monster.aspx
http://hongkongmacro.blogspot.com/2008/02/chinas-inflation-good-news-or-bad.html
http://answers.yahoo.com/question/index?qid=20081207155011AAJLRQe
http://www.bestcashcow.com/the_economy/all/sam_cass/is-inflation-good-or-bad-for-you
http://www.nber.org/papers/w13010
http://www.ncsu.edu/project/calscommblogs/economic/archives/2006/07/why_is_inflatio.html
http://www.financialsense.com/Market/puplava/2003/1117.html
http://www.slideshare.net/arpit105/inflation-good-or-bad/
http://en.wikipedia.org/wiki/Monetary_inflation
http://en.wikipedia.org/wiki/Money_supply

 

[Sandybestdog]

QUOTE]Quote from tradersboredom:

nobody like real inflation including the rich but inflation is a reality in the long term if yo uare in cash.

majority of people don't hold cash. most of peoples wealth is in their house.
and don't forget most people are in debt.

inflation also destroys the the long term debt. [/QUOTE]

Why don’t oil companies, farmers, most employers, stock holders, etc not like inflation? All of these benefit from it. They are the ones being hurt during this slight deflationary period. The little guy is doing ok right now, assuming he hasn’t lost his job.

 

[Derrick1983]

Well, hyperinflation is terrible Look at Zimbabwe :eek: How inflation has gone up!

“It recently estimated Zimbabwe’s inflation at 89.7 sextillion percent — that’s (89700000000000000000000%).”

What a number!!! :eek: Wonder whether even the computer can handle it!

Zimbabwe's inflation rate is officially 230 million percent per year….

Independent analysts say the rate is really billions of percentage points……..

Country has issued bills as high as Z$100 billion in the past……..

Current highest note, $Z50,000, is not enough to buy half a loaf of bread…….



Zimbabwe is the first country in the 21st century to hyperinflate. In February 2007, Zimbabwe’s inflation rate topped 50% per month, the minimum rate required to qualify as a hyperinflation (50% per month is equal to a 12,875% per year). Since then, inflation has soared……………..



Zimbabwe is reeling under one of the worst economic crisis worldwide, with an inflation figure hitting 5 quintillion, according to independent statisticians…….

http://news.sky.com/skynews/Home/Sky-News-Archive/Article/20080641313077

http://www.thetimes.co.za/News/Article.aspx?id=904878

http://edition.cnn.com/2008/BUSINESS/08/19/zimbabwe.inflation/index.html

http://edition.cnn.com/2008/WORLD/africa/11/03/zimbabwe.money/index.html

http://news.google.com/news?hl=en&c...=UTF-8&sa=X&oi=news_result&resnum=11&ct=title

http://www.cato.org/zimbabwe (table here shows the growth of the inflation, My god!!)

http://www.zimeye.org/?p=844

An interesting link for US inflation

http://www.forbes.com/finance/2008/...ion-pf-ii-in_jt_1217currencycurrents_inl.html