
Inflation as a Compound Annual Interest Rate - joshkaufman
I was just browsing through "The Economist Numbers Guide," and read the part on inflation. Here's the part that jumped out at me, which I thought the econ geeks here would find thought-provoking:<p>"Accounting for inflation is easy in a numerical sense. The ugly dragon is nothing more than an interest charge. The annual rate of inflation is compounded yearly." (p.51)<p>I've heard inflation referred to as a "hidden tax" (which it is), but framing it as compound interest charged to all dollars circulating in an economy is new to me. The beneficiary of this "interest" is the monetary issuer (the central bank) and the member banks that receive the use of this new money first, before the money is devalued due to the increase in supply.<p>Think of the Fed (or your respective central bank) as the equivalent of a big JP Morgan Chase / MBNA / Bank of America credit card, charging you interest on every dollar in your pocket every second of every day, without your permission or consent. At any time, the central bank has the power to increase the interest rate (by printing more money), and there's no way you can opt-out outside of reverting to bartering for goods directly.<p>They don't even have to bill you: your money simply becomes less valuable over time, so it takes more currency to buy the same goods. If you're like 99.999% of the human population that holds some form of fiat currency, you're paying compound annual interest to the central bank in exchange for nothing. Eventually, the currency becomes worthless - historically, every fiat currency ever created as eventually lost 100% of its value. It's less a question of "if" and more a question of "when".<p>Now I have a better idea of what Mayer Amschel Rothschild meant when he said, "Give me control of a nation's money supply, and I care not who makes its laws."
======
seregine
>> Eventually, the currency becomes worthless - historically, every fiat
currency ever created as eventually lost 100% of its value. It's less a
question of "if" and more a question of "when".

This is trivially true (all civilizations end, the sun burns out, nothing is
permanent) but the relevant timeframe is usually one's lifetime, and the
stability of the currency over that timeframe is more important.

>> you're paying compound annual interest to the central bank in exchange for
nothing

You're paying that "interest" in exchange for a more stable currency, a supply
of liquidity that allows for progress/growth . If the central bank is doing
its job reasonably well, that is. You may also be paying for the "feature" of
money that allows you to transfer value to your future self with relatively
little risk.

~~~
APLonDrugs
"This is trivially true (all civilizations end, the sun burns out, nothing is
permanent) but the relevant timeframe is usually one's lifetime, and the
stability of the currency over that timeframe is more important."

Not sure it is Trivially, fait can go to zero, gold for example can not as
there are other uses for it... Perhaps, like good design, the more timeless
option might be the better:-)

You're paying that "interest" in exchange for a more stable currency" who pays
for whom might be the better question with who is to benefit.

~~~
camccann
Well, a physical dollar bill has intrinsic value as well; if nothing else, you
could burn it for energy. The intrinsic value is a minuscule fraction of the
"official" value, but still nonzero.

The intrinsic value of gold is a lot greater, but probably still only a small
fraction of its general market value; its very reputation as synonymous with
tangible wealth serves to paradoxically inflate its value.

~~~
amohr
And the Deutsche Mark made great wallpaper. The intrinsic value of an object
created for a lost purpose is worth less than the materials it's made out of.

Gold, on the other hand, has a naturally limited supply and has notable uses.
It's reputation as a symbol of wealth is not only because of the cost, but
also because there's not enough for everybody. If there was a limited supply
of denim, we'd see a big comeback in Storm Riders.

It's like owning a Tesla - it's not just a $100k car, it implies that you're a
somebody.

------
lowkey
I'm so happy this is being discussed - a bit suprised that so many are so
quick to jump to the defense of the status quo of a private for-profit central
bank - but still happy the subject is gaining some awareness.

I have always thought that a better model would be to call it 'dilution'
instead of inflation since this is the primary mechanism in operation.
'Dilution' would draw a natural comparison with shareholder's equity being
diluted by a new share issuance. Inflation makes it sound like something that
is either inevitable or is a good anti-dote to the notorious 'Deflation'

In the words of the great George Carlin, "The game is rigged! It's a big club
and you ain't in it."

~~~
cynicalkane
I'm not happy to see this discussed. The Federal Reserve is not privately
"owned" in any capitalist sense of ownership, since the "owners" have no say
over Fed policy and only a tiny slice of the profits. Almost all profit made
by the Fed is returned to the Treasury, yet the system was deliberately
designed to keep the Treasury from having power over the Fed.

The only conspiracy theory mentioned in the original post that survives this
analysis is the idea that the Fed, somehow, is taxing people by inflating. Yet
steady inflation is an essential ingredient of monetary policy, since it must
be possible to have interest rates below the inflation rate. Almost all
important economists, including those of the ardently anti-government Chicago
school, agree on this point.

It's only fitting that you quoted George Carlin at the end of the post. He's
another person who likes to talk about things while displaying no interest in
actually understanding them.

~~~
alex_c
_it must be possible to have interest rates below the inflation rate_

(economics neophyte question) Why is that?

~~~
cynicalkane
Because the primary function of the central bank is to control the money
supply. If inflation is 0, or more generally if short-term interest rates are
always higher than inflation, then the central bank's tools are rather one
sided. All they can do is decrease the real money supply by making interest
rates higher.

That would be bad news in a situation such as, for example, right now, where a
massive credit collapse is greatly increasing the demand for money. To keep
the economy stable the Fed _must_ print money. They're doing it by buying
long-term debt, which is the best they can do but is disruptive to the debt
economy.

------
ggrot
The percentage of the global economy that stores value in a particular
currency will change based on the long-term expected inflation of that
currency. Large companies hedge currencies all the time.

If you live in zimbabwe, whenever you receive currency, you immediately try to
exchange it for something else, either another currency or goods. If you can
choose to accept payment in a different currency (ie: by leaving the country),
you do.

You can't opt-out of your currency inflating, but you can often choose how
much to hold of it. How much currency do _you_ actually have? I bet most of
your net-worth is in non-currency. If you own stock and that currency
inflates, the amount of dollars you can get for that stock goes up - you don't
hold currency. Even savings rates tend to track inflation, if you are a bank
and know that the money loaned to you will be worth less in the future, you
can offer to pay more interest for the opportunity to use the money now.

It isn't as if the fed can extract interest on all economic value, just all
dollars, which is a relatively small fraction of stored economic value.

~~~
ghshephard
Data Point per wikipedia, and meant in no way to dismiss your observations -
the Zimbabwean Dollar officially ceased to exist on 1 July 2009. Zimbabwe is
now officially pegged to the United States Dollar.

------
anigbrowl
According to your bio, you are _Author of "The Personal MBA: A World-Class
Business Education in a Single Volume," editor of<http://personalmba.com>,
independent business educator, entrepreneur, former P&G digital analytics
global lead._

Interesting as your website is and your forthcoming book sounds to be, I find
it hard to reconcile with the rather naive viewpoint expressed in the post
above.

To be sure, currencies are only as good as the governments that stand behind
them, and many governments have adopted mercantilist monetary policies at
different times so as to shield their domestic markets from foreign
competition. It is also true that any government administering debts
denominated in the country's on currency are tempted to inflate them away,
indirectly taxing the citizenry.

On the other hand, ownership of specie (hard currency), although a useful
hedge, is no guarantee against economic hardship. In addition to deflation and
the resulting economic distortions, at numerous times through history those
with large holdings have seen it confiscated by fiat, or quasi-inflation can
result from debasement/ seignorage and coin clipping. The Bank of England had
a currency crisis back when Isaac Newton was master of the Mint due to
disparities between the perceived relative values of gold and silver. I could
go on, but my basic point is that you can abuse a hard currency almost as
easily as a fiat one.

besides, if central banks issuing fiat currency are so evil as to steal from
the pockets of the citizenry via inflation, why do all the largest and most
powerful central banks fight against inflation using their control over
interest rates? I'm honestly confused by your apparent ideological slant.

~~~
joshkaufman
Not completely naive, I hope: "Human Action" and "The Theory of Money and
Credit" by Ludwig Von Mises are excellent, extremely detailed and informative
reads. bokonist presents a good overview of the Austrian case against
inflation / monetary dilution elsewhere in this thread, so I won't repeat it.

Good point that hard currency is not a guarantee against economic hardship -
quite true. Nothing can provide that guarantee, but specie is often a better
option than most: hard currencies like gold are impossible to counterfeit or
produce out of thin air, and the supply is constrained by real-world
production, which limits pricing fluctuations or sudden inflation/deflation.
Prices have been relatively stable for centuries: an ounce of gold today and
an ounce of gold 200 years ago could buy the same amount of physical goods, be
it barrels of oil or a fine suit. Fiat currency devalues quickly: a few short
decades ago, a nickel would buy a soda or a candy bar, at a similar margin to
the manufacturer and retailer. No longer.

Debt is what banks sell. Deflation hurts the most when you're highly
leveraged, and it's hard for borrowers to pay back debt if money becomes more
valuable than when the debt was originated, which is bad for the bank. Under
the guise of "fighting inflation," these banks are altering conditions that
will help sell more debt and ensure (as much as possible) those debts will
eventually be repaid. Control over interest rates is beneficial to the banks
because it allows them to sell more debt, which tends to inflate asset
bubbles, as bokonist mentioned.

There's a reason the founders of the US set gold/silver as the official
currency and fought strongly against the establishment of a central bank -
monetary debasement is a centuries-old issue. It's not a huge surprise it
happened eventually, since there's a huge incentive for financial interests to
establish this control if they can. It's telling, however, that it was done
quickly and in secret, and the inner operations of the Fed are private to this
day.

In the end, most countries sell out their currency in exchange for the promise
of stability and certainty, which the central banks ultimately can't provide -
their interventions create massive second/third/fourth order effects, many of
which make the system less stable. The banks don't care, as long as more debt
is sold - they benefit from the system until it collapses, at which point they
move to a new one.

As to ideological slant, I have the same view of monetary dilution as I do of
debasement / seignorage / coin clipping - it's theft, the taking of property
without consent. The argument "it's for your own good," which seems to be the
rationale behind allowing this to continue, doesn't hold much water when the
parties that do it are the major beneficiaries.

------
klodolph
Almost everything decreases in value over time, such is the nature of
progress. I can have tens of GFLOPS available to me for a couple hundred
dollars, in 1984 I would have paid $15M per GFLOPS. That's a decrease of value
of over 99.999%, in only a quarter century. Someday gold will be cheap, too,
either because the bubble bursts or some researcher makes a gold machine. I
don't have a right to value.

Cash has always been a relatively poor investment, useful only because its
convenience and liquidity are second to none. Inflation serves both of these
purposes. If you don't want to use dollars, you CAN invest in stocks, gold, or
just get chickens for bartering.

------
ardell
>> The beneficiary of this "interest" is the monetary issuer (the central
bank)

Seems like the beneficiary of the "interest" is anyone who holds debt against
that currency. For instance, if I borrow $1k from a good friend who charges no
interest, and pay him back in a year, the $1k he receives at the end of the
year will buy him less than it would have previously.

In practice an lender does charge interest but assuming that interest rates,
like any other product, is priced not by cost but by what the market will
bear, the lender must bear the cost of inflation.

>> there's no way you can opt-out outside of reverting to bartering for goods
directly.

Bartering for goods _can_ carry the same risk of inflation if others are able
to flood the market with competitive goods. But in a single-currency system we
have a central agency that is able to produce money without producing wealth.
And producing money without producing wealth is what leads to inflation.

------
stanleydrew
_you're paying compound annual interest to the central bank in exchange for
nothing._

No, you get currency. If you don't want to hold fiat currency then you don't
have to. The problem is that barter is really really annoying and inefficient,
so we came up with something better. A reasonable rate of inflation (e.g. <
2%) is a small price to pay.

------
dpatru
The real issue of money is control. Even if people want to use the dollar
because it's a "stable" currency that "allows for progress/growth" that
shouldn't give them the right to force others to use the currency.

Legal tender laws, prohibitions on issuing alternative money/coinage, and
taxes on other forms of money are ways in which government forces its citizens
to use its currency. If the currency were really so good, people shouldn't
have to be forced to use it.

Regarding currency, government apologists are like commissars who, while
preventing their citizens from leaving the country, loudly proclaim that they
are better off than their capitalist neighbors.

------
ashley
Perhaps you could clarify your definition of inflation. As I have not read
"The Economist Numbers Guide", I can't say in what context they meant by
comparing the inflation rate to an annual compound interest rate.

We need not necessarily be suspicious of the Fed, however, in devaluing fiat
currency. It might be easier to think this if you think of interest rates and
inflation differently. Interest rates set by the Fed, like the federal funds
rate or the discount rate, and inflation are actually negatively correlated.
That is, the lower the interest rate, the higher the rate of inflation that
will ensue as the monetary supply expands and more goods/services are
produced. This is the rationale behind our low interest rate during the recent
recession. The interest rate is more of a price on the available credit. A low
interest rate makes borrowing more attractive, and thus investing into a new
project (rather than borrowing on consumer credit for mere consumption like
jewelry or a mortgage for a house that you can't afford) will increase.
Instead of thinking of interest and inflation solely as finance charges, think
of them as prices of credit/investing and controlling supply/demand of goods
in the macroeconomy.

So making the comparison between the Fed and JP Morgan or any private bank in
terms of interest rate charging and inflation is misleading. Private, publicly
traded banks have the sole goal of high returns to their shareholders. It may
help to understand the calculation of the inflation rate as an interest
charge, but the intention of the inflation target and the federal funds rates
is markedly different than that of private banks. The Federal Reserve is
trying to balance inflation with national economic growth and security, and it
is a fine line to walk.

And in response to Rothschild, while monetary policy is a powerful tool to
regulate the economy, we also have the mechanism of fiscal policy, i.e.
government spending in infrastructure and national programs. Fiscal policy is
more of a clunker in terms of being slower, since it requires political will
of a heterogeneous group of thinkers, but it does present an alternative to
pure monetary policy. (When I say monetary policy, I mean anything a central
bank does to regulate the amount of currency circulating outside the
reserves).

------
brianto2010
I've heard that inflation doesn't actually 'tax' you because all nominal
prices adjust so they have similar (previous) real values. If inflation
increases, so do your wages, prices at stores, and interest rates (savings
rate, loans rate, etc).

> _Think of the Fed... charging you interest on every dollar in your pocket
> every second of every day, without your permission or consent._

Like I said before: _ceteris paribus_ , the real value of your money remains
the same. A dollar may be worth less, but that is compensated with higher
interest rates, wages, etc.

> _At any time, the central bank has the power to increase the interest
> rate..._

Yes, and that is part of their monetary policy. HOWEVER, interest rates are
used as a _signal_ for the macro economy, not a cause. Let's say there is a
sudden upward shift of the demand of money (because of a speculative bubble,
for our example; a sudden explosion of investing). This shift in demand would
therefore change where the supply of money intersects the demand of money.
This point is higher. As I've said before, the interest rate (price level) is
a response variable. With this situation, the theoretical price level would
increase to where this new intersection takes place. _The FED_ can, as a
response, increase the supply of money, shifting the supply to the right,
hopefully returning the intersection of the (new) demand and (new) supply
curve to a level where the interest rate is constant. That way, a constant
price level (might) be maintained.

One aspect you've neglected to mention is the breadth of our _global_ economy.
The dollar is _the_ global currency (or so I've heard). Let's say that our
currency is weakening (becoming less valuable) compared to the euro. The
Europeans would then take their money out of the market for dollars, thus
decreasing the supply of dollars (a leftward supply shift). This shift would
then cause our _signal_ price level (interest rate) to increase. The change in
interest rate is not our doing (partially).

There is a way around inflation. If we back our currency with
gold/silver/something whose value is stable and makes good commodity money,
then the value of money is much more stable. However, the US won't do that.

~~~
anamax
> I've heard that inflation doesn't actually 'tax' you because all nominal
> prices adjust so they have similar (previous) real values. If inflation
> increases, so do your wages, prices at stores, and interest rates (savings
> rate, loans rate, etc).

What are the odds that each and every one of those will change in exactly the
right amount?

For example, fixed interest things won't change. My mortgage payment doesn't
change with inflation.

~~~
brianto2010
I never said 'exactly'. I said 'similar'. Interest rates are a signal, but
since the underlying micro economy is constantly changing, the derived macro
economy is also changing. Therefore, the (equilibrium) interest rate is
constantly changing and always a bit off.

You are right. Some interest rates change; others don't. For instance, you can
choose between a fixed and variable annuity IRA accounts. I didn't mean to
imply that _all_ interest rates change.

~~~
anamax
> I never said 'exactly'. I said 'similar'.

Actually, you wrote "I've heard that inflation doesn't actually 'tax' you
because all nominal prices adjust so they have similar (previous) real
values."

Whenever the adjustment isn't perfect, it's either a tax or benefit. Fixed-
rate instruments include an inflation expectation. If reality is different,
someone takes a hit.

------
bigwill
This "hidden tax" applies to the government as well. Inflation expectations
are baked into the valuation of financial instruments. For example, if
investors think inflation is going to be high they'll demand a higher interest
rate on their bonds. _Inflation is part of the interest rate_. This includes
the interest rates at which the government borrows, so they're not
particularly jazzed about a high inflation "tax" either. So if you're sitting
on dollars and paying this tax, you can rather easily be compensated for it by
lending that money.

------
patrickgzill
It gets worse: taxes like the USA's AMT (designed originally to affect only
155 high income households) are not always inflation-adjusted, or the
inflation measures are inaccurate or corrupted for political purposes.

Thus incomes taxes other than a flat rate income tax, have a "ratchet" effect
over time, snaring more and more people with higher tax rates when in real
terms they are not earning any more.

BTW I know a few people who are heavily into gold and silver, they are in a
way, boycotting the central bank of the country they live in.

------
siavosh
It's kind of harsh to say "in exchange for nothing." Monetary policy for all
its controversy is still a tool, that at times averts depressions...

~~~
akkartik
To be more precise: inflation is a margin of safety against deflation.

Imagine a medieval world where the money supply is fixed. New money is never
created, it can only be transferred back and forth. Now imagine somebody
invents and rents out a steam engine. The world is now richer by this new
technology. Your money's purchasing power just went up, since it can buy
something useful that it couldn't before. Since the total amount of money is
fixed, other unrelated goods will go down in price. If this becomes a common
occurrence people will hoard money rather than buy stuff. This conservatism
reduces investment in new ventures, and the overall growth of the economy
suffers.

In an ideal world we'd be able to measure just how much the economy grew by
and add just that much money into the economy. But we don't know how to do
that without avoiding a command economy. And perhaps the question is ill-posed
anyway.

Inflation is hard to control, and it can be 'captured' by special interests,
leading to tragedy of the commons. We're still looking for a better way to
avoid deflation.

~~~
bokonist
The problem is that the word "deflation" has been corrupted to refer to two
entirely different phenomena:

1) It can refer to generally falling prices due to increasing productivity.
This is entirely beneficial. Video game consoles, transistors, etc, experience
deflation and it results in consumers getting better products.

2) A contraction in the money supply, or a shock to the demand for money. The
classic example is the bank run that wipes out people's deposits. This type of
deflation is terrible because it results in falling aggregate demand, idle
factories, and unemployment.

The first type of deflation is beneficial is good, and the second kind is very
bad.

The Fed and mainstream economists believe that both kinds of deflation need to
be stopped. Economists thus argue for constant inflation to prevent even the
slight possibility of slipping into deflation.

To me, this is like arguing that a balloon should be constantly inflated to
prevent any chance of it ever deflating. That's not a recipe for preventing
deflation, its a recipe for blowing a bubble and then having a disastrous
popping. Which is exactly what has happened happened.

~~~
akkartik
I don't see why the first type is beneficial. It creates the same sorts of
incentives to be conservative as the second.

Your technology examples have two properties: they're non-essentials, and
they're seldom more than a small fraction of most people's assets. If
productivity caused more widespread deflation it would cause the same ill-
effects and compromise money's major role: as an enabler of investment.

You're right that too much 'margin of safety' leads to bubbles. My favorite
test comes from Keynes: <http://akkartik.name/blog/2009-09-26-02-40-52-soc>

~~~
bokonist
Here is my broader case against monetary dilution ( what you call inflation):

1) In the modern U.S. dilution happens as follows: First banks loan out the
same money multiple times. Eventually, years later, they get called on this
and there is a bank run ( example, the run on the money markets a few months
ago). The Fed then steps in and guarantees all deposits. A guarantee by the
Fed to print out money to back a deposit is no different than actually
printing money. Thus the whole cycle is equivalent to the government taxing
savings and spending that money on subsidized loans to borrowers that have
been approved by the nationally recognized rating agencies.

2) From 1995 to 2008, the money supply was diluting at ~9% a year. Just look
at MZM ( <http://research.stlouisfed.org/fred2/series/MZM> ). This is an
extraordinary rate of dilution. As a result, Americans trying to save lost a
lot of money in real terms. An investor who ten years ago put their money in
50% CD's/50% stocks would have lost money over the past ten years. Even 100%
CD's would have lost money. The only investment that can protect against that
kind of dilution is gold. But investing in gold is hardly productive.

3) The actual loans the government printed money to fund, went to McMansions,
leveraged buyouts, commodities speculation, and credit card debt. These were
neither productive nor in either of our interests. They are the classic case
of Austrian malinvestment.

4) The rapid dilution forced people to put their money in any place but
dollars. However, this did not produce "investment". It produced massive asset
bubbles. People were not carefully considering business fundamentals. They
engaged in herd behavior, putting their money where everyone else was putting
it. They turned everything from stocks to housing into psuedo-money (ie not
valuable because of dividends, but because everyone else thinks it is
valuable). Sure there were a few gems that came out of this process, like
Google. But most of the money was burned up in Vegas real estate and companies
like pets.com.

5) Since I define economic growth as "producing more of what people want",
taxing people to pay for subsidized loans does not result in economic growth,
even if it increases the GDP numbers. Subsidized loans might result in more
oil pipelines being built. But if people wanted more oil pipelines, they could
have signaled that to the market by buying more oil. Perhaps what people
really wanted to was to retire early and spend more time with family and
friends. Taxing their savings to fund oil pipelines would thus make it harder
to retire and result in less of what they wanted - that's economic decline,
not growth. The government does not know what the people want better than the
people, so it should not tax their savings to force them to spend money in
certain ways.

6) The asset bubbles have made the prices of everything more expensive, from
housing and oil to bushels of wheat. Some of these prices are now starting to
come down, but a return to dilution will send them right back up again. As a
result, for the past 35 years real standard of living has been stagnant. While
Moore's law has brought some new technological gadgets, higher housing and
commodity prices have forced us to work longer hours just to make ends meet.

7) Investing is not something that just magically works for everyone.
Investing takes skill. A stock market investor is an owner of that company.
Most people are not smart enough to be owners of companies. They are not even
smart enough to pick out a mutual fund that can properly manage a company.
Thus the net effect of the mass entry into the stock market from 1980 to 2008
has been to almost completely destroy it. People make crappy investment
decisions, then more regulations are put in place to protected them. These
regulations then bring the stock market into a state of permanent stagnation.
Just look at SarBox.

8) If a fiat currency could be run with a dilution rate of 2-3%, it would be
acceptable to me. We came close to this before Bretton Woods ended. I'd prefer
0%, which would be even better than a gold standard. But I am skeptical that
we will ever return to that kind of stable fiat currency. The political
pressures to dilute are too great. The U.S. has come perilously close to
destroying its currency twice in thirty years ( 1979 and early 2008).

~~~
akkartik
You're absolutely right about all those issues with dilution run amuck. I was
thinking about McMansions and LBOs when I mentioned the tragedy of the
commons.

My major disagreement is with 8. 0% dilution would be bad for the reasons I
mentioned before. Some small rate of dilution would probably be the sweet
spot, but better people than me need to figure out whether it's 2-3% or
something else.

More tentatively and subjectively, I think you're mischaracterizing regulation
in 7. There's been bad regulation, yes, but the response isn't lack of
regulation.

------
boredguy8
Hacker News is not a blog.

~~~
clistctrl
You've been here longer than I have, so maybe things are different... but I
get the impression HN is about discussion. What is the difference between this
guy creating a blog with a single entry then posting it on here for us to read
and comment on, and him just creating a long Ask HN post?

------
mschy
Inflation is a tax on hoarding.

If you buy assets, they'll generally keep pace with inflation (with some
fluctuation, depending on which assets you've bought.)

If you engage in productive investment of some sort, you'll generally beat
inflation and acquire wealth, which is certainly a desired effect.

If you try to sit on your money, investing in nothing, doing nothing, it will
dwindle away. And most people in society are pretty happy with that, because
it really means "if you're rich, that's fine... but if you want to stay rich
you need to continue contributing to society, if only by loaning others your
money for a return."

~~~
Lendal
What about your income? Is that keeping pace as well? I know mine surely
isn't.

~~~
mschy
If your real income is decreasing, then your real income is decreasing, no
matter what currency is in use. They're essentially unrelated.

The only "benefit" of inflation to employers is that it makes it easier to
implement wage cuts without facing resistance. That said, if you took away
inflation as a way to hide wage cuts, nominal wage cuts would be the new
normal in a lot of fields.

------
mschy
One major point you seem to have missed, most people have _very_ little of
their wealth held as raw currency.

Most people have wealth held in real estate, stocks, bonds, cars, businesses,
retirement accounts, etc... and a comparative few bucks of cash.

So even if you take the view that it's compound annual interest to the central
bank, you're only paying it on the amount of money that you float as cash and
non-investment accounts. And in return you get a managed, reasonably
predictable currency.

~~~
jackowayed
I don't have too much money (I'm 16), but basically all of my wealth is,
though not cash, basically in the same situation. I have a checking account
earning 0.1%/year and a "savings" account earning 0.2%. So the interest is
negligible, and my money is still depreciating just about as fast as cash.

Yeah, when I get older I'll buy stocks, maybe buy a house, etc. But I have a
decent amount of wealth, and I'm "paying interest" on all of it.

If interest rates weren't in the toilet right now, I'd look for a savings
account paying real interest, a CD, or something of that sort. Luckily the
"interest rate" levied on cash is low right now, so it's not worth it to me to
bother.

~~~
WingForward
It's not luck that interest rates and inflation are both low. Inflation is a
key factor that influences interest rates

