I've been wondering this question for a while. Ignoring current events, why is a little bit of inflation desirable?

I do understand that it's done to "stimulate" the economy so people don't let their cash rot in a checking account, but isn't it a zero-sum game? Everybody says that money is not meant to stay where it is, rather, should flow through the economy. But if the economy always needs injections of liquidity because otherwise it fails, isn't the economy broken?

I feel like there's something I can't comprehend about that.

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[–] 0 points 3 hours ago* (last edited 3 hours ago) (2 children)

Make sense?

No because it doesn't answer my question. I asked about hoarding wealth - you're talking about spending habits. Your average billionaire can't just walk into a bank and withdraw, say 10 million. They probably don't have anything even close to that much of liquid wealth.

Already have thousands of times over. My ‘net worth’ is almost entirely due to my ownership stakes in Tesla and SpaceX. I have <0.1% that is cash. Tesla and SpaceX employees all receive stock/options and Tesla is >80% owned by retail investors and index/pension funds, so value increases apply >80% to them.

From Elon's twitter

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  • [–] 3 points 3 hours ago*

    Hmm. So, I think you're struggling to understand how those two things are connected.

    First off, when we talk about "hoarding wealth", yes, we're including assets in that. No one here is saying that Elon has 900 billion dollars in a big old Scrooge McDuck vault. Obviously it's all tied up in shares, bonds, real estate, etc. That makes it technically less liquid, though in practice those issues are largely irrelevant, because a) as I was pointing out in my previous reply, what the ultra-wealthy spend is such a small fraction of what they own that in practice they rarely need to dip into their less liquid assets, and b) because even larger purchases can be handled by simply taking on very cheap debt using those same assets as collateral. Basically, your credit card runs at 20%, Elon's runs at 2%.

    More to the point, that huge hoard of assets is the problem. Because their ability to buy up investments (including things that really shouldn't be investments, like housing) makes those things more expensive for the rest of us. They can buy all the housing and rent it back to us, instead of us actually being able to afford homes.

    But ultimately talking about spending habits is the answer to your question, because those raw differences in what people spend versus what they make account for huge differences in how much of our wealth we can afford to hold onto. The fact that that wealth is stored in assets rather than a bank account is completely immaterial. Or, rather, it is material, but only further proves my point.

    Think about it this way; Elon can afford to have 99.9% of his wealth tied up in assets where he cannot immediately access it, and can still live a life of luxury most people couldn't imagine in their wildest dreams. Do you think the average 9-5 worker could afford to receive even 90% of their pay in the form of assets rather than money? Or would they just be selling those assets immediately to cover their daily costs? That, right there... That's the problem.

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  • [–] 1 point 2 hours ago

    You're right! They can't just walk into a bank and withdraw 10 million!

    Instead, they take out a loan for 10 million against a collateral of 20 million in stocks, expense the interest, claim 0 income and therefore no income tax, and have that transferred to their bank account. Then they withdraw 10 million, while their stocks continue to gain (or lose) value, and at some point they have to take some portion of their dividends as income rather than rolling them into more stocks or, God forbid, sell some of those stocks to pay back the loan.

    In a technical sense, no, that money isn't just sitting in a bank account, but there's a weird effect. If you only have a small amount of stocks, say a few million worth, you can sell them off in a relatively short period without harming the stock because it's just a blip at most in normal volatility. If you have a lot, say billions, you can sell enough to do whatever the average person would ever want to do with only slightly more volatility than is some nobody did it, and much of that is due to the visibility of a billionaire doing that. If that billionaire needs more than a few million, he can just follow the process outlined above with no impact at all to the stock market and a number of benefits to himself. So in a practical sense, if you only have a little stocks, say millions, accessing those millions may take days or weeks, but if you have billions, you can access it only slightly slower than I can withdraw $100.

    This money is still in the economy and helping to economy to function overall, but the majority of that benefit is only experienced by one person, the billionaire. This is effectively them hoarding those billions, not because they're sitting in an account but because a single person is experiencing the majority of that benefit while the rest is spread across thousands or perhaps millions of people.

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