Originally posted by PalynkaThe evidence is certainly mixed. At one point I began a research project on this very subject, but I haven't gone back to it in a while because of the need to be ready for the job market. Anyway, one thing that hasn't been mentioned (at least I don't believe so) is that the costs of inflation fall heavily upon those whose wealth is concentrated in cash. This is true for those who face high costs to interacting with banks, in particular the very poor (who get killed on fees) and new immigrants (language barriers, even bias in some cases).
Inflation hurts more those with fixed (or very rigid) nominal incomes, like wage-earners, pensioners, people on benefits, etc. The least wealthy also tend to keep their (meagre) savings in cash or checking accounts, while equity tends to be held by the wealthy.
Overall, I look at inflation as being more regressive than progressive but the evidence is indeed mixed.
Originally posted by Metal BrainNaturally they are using the money that their clients have given them to use. For consumer banking, this would be deposits. For investment banking, this would be trusts and customer investments.
Then where did they get the money from? Are you suggesting they were not using other people's money?
It's not like an investment bank was making loans to itself from high-powered to exploit the rr and make "speculative" investments.
Originally posted by Metal BrainTechnically, inflation taxes every single person who holds a unit of the currency. We really should use the terminology "net tax" which accounts for the indirect gains that some people may get from inflation (e.g. decreased real value of debt owed)
Inflation does tax everyone, but not always equally. Inflation taxes more people than not and that is a fact.
I would argue that the poor are taxed more by inflation because their wages do not keep up with inflation. I would think skilled workers would have more leverage to increase their pay than unskilled workers.
Inflation is always bad. I have ...[text shortened]... al of that claim though. Sounds like propaganda to fool people into thinking the tax is healthy.
Originally posted by Metal BrainThe problem no1 has (and I do too) is that you've picked 25% for no apparent good reason.
You talk as if I am asking for a rr of 75%, that is not the case. I am suggesting 25% and even that should not happen until banks lend again at previous levels. At 25% banks would be able to loan 3 times as much as it holds in reserves. How can you say that would limit growth all the time and even impoverish us? Do you have some historical evidence of th ...[text shortened]... e inevitable. If you think this is over you have another thing coming. The worse is yet to come.
It's still not clear exactly what problem you are solving with 25% that 3% cannot solve. It's also not clear why 25% does the best job of solving that not-so-well-defined problem.
If you could very simply state the what the issue is, and then show why 3% is too low and 75% is too high and 25% is "just right" then things would be a lot clearer to me.
Originally posted by PalynkaInteresting chart. I don't have time to speculatively dig more into how they have defined 'disposable income' etc -- and will therefore have to bow to your EVIDENCE.
As you can see (although there is some convergence that will probably reverse somewhat now), the lower deciles still have less debt as a percentage of disposable income than the top deciles.
All I would note is that, in my experience of people seeking help with debt problems, they are almost without excpetion from the lowest 2 or 3 centiles. Just an impression. Maybe an 80% cut in "D.I." is easier to cope with if you're starting from a high base.
Originally posted by PalynkaAll I meant was that the whole market seems to hang off every fed rate cut or rise, and given that a very long history of very detailed data around a vast array of myriad market conditions must surely exist, you would think the fed much like the energy company that supplies the grid with power, has the means to deliver the right floor for the market, but seems to be weighed down by political pressure or otherwise from acting too dynamically in terms of adjusting its rates to catch extremes in economic activity either overheating the economy or by taking its time in adjusting downwards seeing the market stall. Why doesn't it adjust its rates continuously instead of making each rate change such a big event that cause a whole speculation bubble all of its own?
I'm not following your first paragraph, can you rephrase it?One of the problems is that real-time data on "real" variables is almost impossible to have. Many times, predictions for the future have to be made using estimates of what the current data is!.
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Originally posted by kmax87The fed doesn't have enough data to update continuously.
All I meant was that the whole market seems to hang off every fed rate cut or rise, and given that a very long history of very detailed data around a vast array of myriad market conditions must surely exist, you would think the fed much like the energy company that supplies the grid with power, has the means to deliver the right floor for the market, but seem making each rate change such a big event that cause a whole speculation bubble all of its own?
While the stock market numbers come in daily (or by the second), a lot of other important data (for instance on employment and various sector performances) come in at a lower frequency. The stock market moves around for a lot of reasons only some of which are directly related to the fundamental health of the economy.
Besides even with years of stock market data, nobody can consistently beat the market in terms of predicting where it is heading day to day. How much harder is it to predict the movement of the general economy from the same data?
Originally posted by kmax87It's a good point. Most monetary models (regarding this issue) end up with a recommendation of an optimal policy rule of some sort that would react continuously if new data streamed continuously.
All I meant was that the whole market seems to hang off every fed rate cut or rise, and given that a very long history of very detailed data around a vast array of myriad market conditions must surely exist, you would think the fed much like the energy company that supplies the grid with power, has the means to deliver the right floor for the market, but seem ...[text shortened]... making each rate change such a big event that cause a whole speculation bubble all of its own?
Nowadays, I would say the main reason to keep decisions intermittent is that applications of such a rule are very dependent on real economic data, which is not available continuously. The committee meetings provide data collectors within the institution with deadlines and allow for coordination among them (it's better if the "snapshot" of the economy is as coherent as regards to timing as possible).
The fact that models are still imperfect and can never (IMO) include all possible information sources will always leave room for subjectivity, though. And, unfortunately, with subjectivity comes political pressure, etc. The system is such that it is almost always better for the financial sector that interest rates fall (look at them as a cost of "input" for banks). This is why you almost always see the FT arguing for rate cuts and adding to the doom&gloom whenever a rate change seems likely.
Originally posted by kmax87It's ironic that you make this point now, when conventional "rate cuts" have been making little difference to the actual rate at which bank are lending, and central banks including the Fed have therefore been turning instead to QE (a policy which is indeed "continuously adjusted"😉.
All I meant was that the whole market seems to hang off every fed rate cut or rise, and given that a very long history of very detailed data around a vast array of myriad market conditions must surely exist, you would think the fed much like the energy company that supplies the grid with power, has the means to deliver the right floor for the market, but seem ...[text shortened]... making each rate change such a big event that cause a whole speculation bubble all of its own?