Who benefits from inflation?

[moses]

There seems to be an increasing groundswell of thought that we are in for a bout of inflation. As serious inflation has not been seen in Oz for at least 10 years or so, I thought it would be good to discuss the effects so that we can plan to benefit.

For example, if the price of gold sky-rockets, then holders of gold benefit. But surely the same applies to the holders of any form of property that does not wear out with time?

So...who benefits most from inflation, and who loses most? Is it better to be in debt or out of debt? etc

 

[Shane Baker]

Hi

I would suggest tangible assets if we are talking rising inflation as opposed to hyperinflation. People perceive that it will be definitely more expensive to buy in the future so they purchase today rather than delay. Cash loses value with inflation over time.

I feel that holding debt is a function of servicability. As an example I may have a personal mortgage and some investment property. If I can afford the rising interest costs (rising inflation provokes rising interest rate response from Central Banks), then I may choose to hold the debt based investment property as I may sell in the future for a much larger capital gain and perhaps freehold some other property as a result.Difficulties occur when servicability becomes an issue and people are forced to sell assets.

Hope this helps

Cheers

Shane

 

[krisbarry]

People with savings benefit eg Pensioners. As inflation rises so do interest rates.

 

[Judd]

People with savings benefit eg Pensioners. As inflation rises so do interest rates.

As does most other basket of goods so all that happens in your scenario is that they maintain parity. Conversely, the Rule of 72 does to some extent negate that parity. Thus, inflation is not necessarily of benefit to people with savings.

Anyway, moses, what inflation are you talking about? Headline inflation? Underlying inflation? The Health sub-group of the CPI (which is beggars muddle as it doesn't measure true increases in actual costs but variations in health insurance premiums plus a few other bits and pieces?)

 

[nioka]

People with savings benefit eg Pensioners. As inflation rises so do interest rates.

That is so far off the mark it is easy to see that you are not a pensioner nor do you have cash savings invested. Interest after tax is about equal to inflation in my experience,unless you chase risky high interest offers.

 

[Smurf1976]

Who benefits from inflation? Those who are net short cash and long something tangible, preferably without being exposed to varialble interest rates.

 

[springhill]

Surely a Government with a GST levied on the community benefits! Increased prices = increased taxes. Too simple a view maybe? Never claimed to be an economist!

 

[Sprinter79]

One word: BANKS



hahhahah

 

[theasxgorilla]

One word: BANKS

Is this true? I would think that banks fear inflation. Those with debt can benefit...it evaporates away the real value of a loan. Banks want to keep you as a customer. If inflation takes off and wages go up too, then you can pay off your home loan faster.

 

[wayneL]

That is so far off the mark it is easy to see that you are not a pensioner nor do you have cash savings invested. Interest after tax is about equal to inflation in my experience,unless you chase risky high interest offers.

Particularly when real inflation is manipulated down by a purposefully fraudulent statistical method. Like now.

 

[KIWIKARLOS]

If inflation goes up the aussie dollar goes down in respect to buying power. So even though we may start getting paid more things cost more the net effect shouldn't be close to zero. If inflation was let go we would all get paid $1000000 a year and a mars bar would cost $10. But if you lived in Euro zone you would come here with 5 Euro and have $5000000 Aussie dollars (maybe in zimbarbwi anyway)

The problem would arise if price inflation went up and wage growth stagnated as is whats happening in the US. Prices go up and people can buy less.

 

[explod]

One word: BANKS



hahhahah

Absolutely Sprinter, spot on, have a read of the following

Home
The Secret World of Central Banks
Posted August 7th, 2007 by manystrom in Federal Reserve
by Michael Nystrom, MBA
August 7, 2007

Today, all eyes were on the Federal Reserve: How it would respond to the recent turmoil in global financial markets? Would it lower rates, and if so, would it do any good?

By the time you read this, the Fed's decision - made in secret - will have already been announced. Hundreds of news articles and blogs will argue over its wording and meaning. Was it dovish or hawkish? Discussed ad nauseam will be: what the policy statement does or does not clarify, what it leaves room for in the future, what it means for the economy, housing, jobs, and the prospects for recession or recovery.

What will not be discussed is the powerful role played by central banks themselves.

Central Banks = Centralized Economic Planning
If you thought that centralized economic planning disappeared with the fall of the Berlin wall in 1989, think again. Eight times each year, a group of twelve men meet to make secret decisions that have a profound impact on the US and global economies. None of these men are elected. Their meetings are closed to the public. Even members of the US Congress and the Senate Banking and Finance Committees are barred from attending, or even knowing what is discussed. No detailed account of arguments or discussions is ever made public. Listen to Congressman Ron Paul on the secrecy of the Fed:




In some parts of the world, this might be called a cabal. Here it is called the Federal Reserve Open Market Committee (FOMC). Regardless of what you call it, it is profoundly unfair to the majority of Americans. Eight of the representatives at today's meeting - the Chairman and the Board of Governors - are political appointees of the President. All twelve men are bankers. Their secret decisions - made eight times each year - affect whether or not you can get a loan, what your payment will be, whether the economy booms or sinks into recession, and therefore whether or not you'll have a job.

What the Fed says and what it does are two different things. Today, with the Fed's stated "focus on inflation," I am reminded of Richard Russell's January 4, 2007 edition of his Dow Theory Letters, in which he had a short analysis of central banks. Mr. Russell 83 is years old and has been watching the market for well over fifty (50!) years. He's one wise & curious dude (the last two his own words) who's been writing non-stop since 1958.

This is what Russell has to say about central banks in general:

CENTRAL BANKS - I get a kick out of all these central bank governors, both here and overseas, constantly warning us about the "terrible danger of inflation." What a bunch of snake-oil salesmen these guys are. It's the central banks themselves that are pumping out all that extra fiat money that is creating the inflation. It's like an AIDS carrier indulging in all the sex he can handle while simultaneously warning about the spread of the disease.

So what's it all about with these central bankers? Simple, they like their cushy jobs along with the perks, and the only thing they're worried about is that the world will get wise to the central bank/fiat money racket, and maybe kill the beast. In other words, the central banks are afraid that voters will finally get rid of the whole private money business along with its nonstop production of intrinsically worthless fiat money.

You see, a real headwind of inflation would anger the public, in which case a few intelligent journalists might start putting the blame where it belongs - on the central banks, not the least of which is our own Federal Reserve. No, too much inflation, surging inflation, would be dangerous - it might expose the Fed and the central bankers for what they are - engines of inflation. When you've got a great racket going, like taking control of a nation's money, you want to protect that racket.

So its no wonder that the governors of our Federal Reserve take turns "warning us" about inflation while simultaneously telling us that "they'll keep everything under control." It's enough to cause this editor to "throw up his cookies." The curse of the Fed - it keeps going on and on and on. These freebooters know how to protect their racket. Create inflation, hide the evidence (as they did when they hid the figures on the broad M-3 money supply) and bravely act as our "protectors and saviors." Where was Congress when the Federal Reserve was first approved in 1913? Answer - At the same place it was when Congress handed over to President Bush the power to make war. End of that Russell rant. Whew!

Richard Russell hits the nail right on the head. You won't hear about this in the mainstream media anytime soon. Unlike the MSM, Richard Russell is independent - beholden to no advertisers. He can say what he wants; he is free to speak the truth.

Will the public ever wake up to what is going on with our money supply, and "finally get rid of the whole private money business along with its nonstop production of intrinsically worthless fiat money?" The first step towards that goal is awareness.

Since the Fed is worried about excessive inflation - which it has been creating itself, perhaps it is time for it to create a little deflation, i.e. monetary destruction. By limiting the supply of credit, assets that rely on ever increasing amounts of credit creation begin to lose value or disappear altogether. For those of you who think that deflation is impossible, I direct you to one of the most profound comments ever to appear on Bull! Not bull:

I am fascinated by the common perception that the Federal Reserve is a proven non-stop inflation machine. Inherently, the Federal Reserve uses inflation and deflation to whipsaw the average bystander out of his savings. I don't see how one economic machination is more favored over the other when the goal is to ensure that the public's savings ends up in the accounts of the shareholders of the Federal Reserve System.

Think about it. And stay tuned.

The World's Debt Money System
Last week, in response to my article 'Global Liquidity Defined' I received a question on our debt money system: "I have heard that if all debts were repaid, there would be no "money" left. Is this true?" The short answer to this - thanks to the central bankers - is yes. The long answer will come later this week. Please sign up here to be notified when it is released.

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[Shane Baker]

Reminds me of the great inflation joke about the guy who asked to be cryogenically frozen. Eventually science figured out a way to defrost him and bring him back to life .........fifty years later. He remembers that he had $10,000 in the bank so he rings up the bank and asks how much he has in his account now. They tell him that he has $1.7 trillion dollars in his account!!

He naturally is overjoyed until a voice comes over the line that says.....
to continue this call, please deposit $200 million.

 

[SpotTheDog]

It all depends on which side you’re coming from. If you think that banks and loan agencies would be the ones to benefit (and for those who borrow, it would seem so), they are actually impacted on a large scale. And just because an institution or individual has the cash flow, it doesn’t mean they won’t get burnt in the long term. The majority of earners put their money in banks, invest in assets or participate in some kind of contribution program. Initially it seems a logical and secure way to manage their money. But with rising inflation, many of these commodities lose value, mortgages are defaulted on and quick cash loans grow in demand. Both sides are affected more toward the negative.

 

[jmoz]

Particularly when real inflation is manipulated down by a purposefully fraudulent statistical method. Like now.

The RBA inflation rate never seems to really change. I've never really checked it regularly but has it ever been listed as outside their target range on their website? Seems ridiculous that through everything over the last few years it has stayed at ~2.5% when it feels like costs are going up massively.

Edit: found a chart on their website that shows otherwise. Range still looks smaller than I would have thought

 

[DJG]

Exchange-Traded Treasury Index Bonds - Tied to inflation.

http://www.asx.com.au/documents/pro...nt_Exchange-traded_Treasury_Indexed_Bonds.pdf

 

[sydboy007]

The RBA inflation rate never seems to really change. I've never really checked it regularly but has it ever been listed as outside their target range on their website? Seems ridiculous that through everything over the last few years it has stayed at ~2.5% when it feels like costs are going up massively.

Edit: found a chart on their website that shows otherwise. Range still looks smaller than I would have thought

If one looks at the inflation mandate of the RBA then they've had a few periods ove rthe last decde where they've failed. From their other mandate of full employment has been a lot more success.

If I have a choice of brief periods of higher inflation over higher unemployment I'll take the higher inflation as it's generally less damaging to the economy.

Still, i don't think anyone really wins from high inflation. It distorts economic decisions, encourages consumption now rather than savings, but then it's better than deflation - just look at Japan to see what that's like.

 

[Macro Polo]

The RBA inflation rate never seems to really change. I've never really checked it regularly but has it ever been listed as outside their target range on their website? Seems ridiculous that through everything over the last few years it has stayed at ~2.5% when it feels like costs are going up massively.

Edit: found a chart on their website that shows otherwise. Range still looks smaller than I would have thought

Jmoz, it seems like we have inflation because domestic costs are rising well above the RBA mandate, at over 4%.

It's just that we have been protected by the strong AUD, which has absorbed tradables inflation to the point where it has been in deflation for a few years.

These two types of inflation balance out to result in the 2.4% we have now:



Should the RBA keep cutting rates, it's easy to imagine inflation occurring as low (negative real) rates combined with a lower exchange rate lead to continued non-tradables inflation and an end to tradables deflation.

 

[cribmogul]

4 mine:
If inflation increases nows the time to plan and implement strategies to take advantage. Get in now as momentum builds. What specific trades or ideas should benefit from increasing inflation?

Thoughts?

E.g. I will BTFD Asx200 CFDs at daily Boll Band extremes, and, I will swing trade it at Boll Band extremes as well. Day trading seems like a good strategy if volatility increases due to inflation

 

[cribmogul]

Adding another one to this list to buy - NSR (ASX)