Hey guys,
http://www.dailypaul.com/node/129989
Does inflation wipe out the middle class? Are there any historical examples of this happening? Why does inflation hurt the poor the most? The statist in the video disagrees with Ron Paul and says that inflation is felt evenly between all income groups. Is he wrong?
Thanks.
"No person is so grand or wise or perfect as to be the master of another person." ~ Karl Hess
"look, property is theft, right? Therefore theft is property. Therefore this ship is mine, OK?" ~Zaphod Beeblebrox
People on hourly sallary are hurt by inflation. Particularly because they see that they were getting paid $5/hr when they were 20, and now their sallary has doubled to $10/hr when they're 40.
People who save a lot of money and keep their assets in CASH are hurt by inflation. So if a rich person just kept cash, stored it under his mattress, he would totally lose money. The deal is though that rich people only keep a small fraction of their assets in dollars, whereas poor/middle class people are paid in dollars and have comparably few non-dollar investments. For example, I'm a student. My bank account never breaks 10,000 dollars and I basically need all of it to get through the year. I can't afford to take any risk with it, even by buying gold. Actually really gold is not a risk and ima try and get a physical bar of it soon. But I am the exception, not the rule.
inflation hurts the least politically connected. These people get their hands on the newly created money last, while they still had to deal with rising prices. People that get their hands on the new money first have the advantage of being able to spend all the new money on things that were priced at the old money supply levels.
The reason is because the middle class are mostly savers. And typically the decrease in the purchasing power of money is more than the interest rate that is offered to savers. So, in other words, the middle class savers are being cheated with repayment in dollars of lower purchasing power. The debtors (like the corporations) are benefited since they have to repay their loan in dollars of lower purchasing power. Thus you have the rich getting richer, and the middle class getting poorer comparatively.
The reason is because the middle class are mostly savers.
I disagree that the middle class are mostly savers.
Based upon the fact that they have very little to save.
I would not take the ‘middle class saves a lot’ argument to readily. Savings could be in the form of stock, and stock does not loose value with inflation. If anything, a well-diversified portfolio is the surest hedge against inflation.
The thing with inflation is that, it’s crippling to economic calculation and that means that operating a business would be near to impossible. So, I’d say that inflation destroys entrepreneurs, not the middles class. Being ‘middle class’ per se, has nothing to do with it.
Cognitivist, aren't middle class families usually better savers? I assume their lifestyle (salaried class, with the responsibility to take care of themselves during retirement) presupposes a savigs habit.
Merlin, investing in stocks is a form of saving.
I'm not sure how many investors really know about smart investing. Most just see stockmarkets as a place for speculation, not really as a steady source of income that beats inflation.
It’s not that much about smart investing if what you want is to beat inflation in the long run. You could limit yourself to a ‘passive’ strategy, i.e. picking a well-diversified portfolio and sticking to it whatever happens (a portfolio with 11-17 different stocks is considered well diversified). That will probably outdo inflation.
Now sure, it is far form the best strategy, market beating is the best. But that is for entrepreneurs who go in the market to make a profit, while the idea here is just to hedge against inflation.
The long-run problem with that strategy is that, in the current situation I’m not sure whether the stock market will survive the next crash. Malinvestment in the US is soaring too high, and when it all comes down the capital stock per head will probably be much lower than the level needed for a stock market.