I see a lot of naive statements about the effects of inflation, mostly statements that it makes the rich richer and the poor poorer. This isn't necessarily the case.
During periods of high inflation, the purchasing power of a given amount of money falls. Ergo, those who own cash lose money while those who hold real assets are normally unaffected. Noteworthy is people are still buying bonds whose expected returns is lower than inflation, because holding these bonds is still better than holding cash. This extends to all paper assets, so if you hold stocks like a hedge fund you may still have a net loss even if you make money this year, but a landlord will likely be less affected as he still collects the rent even if he must raise prices and/or put expansions on hold. Farmers and dealers of staple necessities like water and medicine will be totally unaffected as the population needs a fixed amount of the stuff and will pay any price needed.
Also recall that many people, like me, have a negative net worth due to a lot of long term debt. These people are beneficiaries of inflation as the value of their debts outstanding falls, so don't let the economy deter you from going to college and such. On the reverse side, the people who issued all this long term debt (mostly banks of all shapes and sizes) will be incurring a loss as inflation exceeds the expected return of the loans. Retirees with large nest eggs saved up will be incurring losses as the value of their fortunes fall.
And yes, the Feds are deleting all that money they printed. They are doing so with bond trading. During Covid they printed money cheaply by simply placing orders for corporate bonds on the internet using money they simply credited their accounts. Now some of those bonds are maturing and the money paid back to the Feds, and they have raised the Federal Funds Rates (the interest rates they both lend and borrow at). This had the immediate effect of increasing the amount of people lending the Feds money and decreasing the amount of people borrowing from the Feds. All this extra money is simply deleted, and since it all happens electronically operational costs for this is pretty low.
Submitted July 24, 2022 at 05:15AM by 4606120 https://ift.tt/vUaiQ6l
