QE increases the supply of money, which reduces its value, just like most things that are in demand have their price lowered when supply increases.
The reduction in value of cash transfers wealth from people who are cash-rich to people who are asset-rich or have large currency-denominated debt. And because things like salaries are sticky, it also devalues salaried work; this is only partly offset by stickiness in prices, because some goods are imported.
I'm saying that large businesses, governments, banks etc. are able to borrow in large quantities, at relative lower rates.
Governments often borrow in astronomical numbers.
Anyone who does this (think of taking on massive debt to finance a real estate business, building apartment complexes for example) has incentives to prefer inflation, QE, devaluing the currency.
Over the course of lets say 30 years, they collect rents from tenants. They can increase the rents over time. Their payment on that debt will stay the same. So in "real" terms, the payments decrease over time, while the rent collected at least matches inflation.
Do you see now how those with ability to borrow large amounts to finance.. whatever.. have incentives to prefer inflation.
Think about the renter. Or the saver. Their dollars are going down in real value. The renter's monthly rent goes up.
Wages? They are sticky. They stay flat for long periods, which in real terms implies a wage cut.
"Inflation is taxation without legislation"
- Milton Friedman
“the arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislature. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her saving in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation. Either way, she is 'taxed' in a manner that leave her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120 percent income tax, but doesn't seem to notice that 5 percent inflation is the economic equivalent.”
>"Anyone who does this (think of taking on massive debt to finance a real estate business, building apartment complexes for example) has incentives to prefer inflation, QE, devaluing the currency."
I understand why they might prefer devaluation and QE but not why anyone would prefer inflation. Can you explain? Inflation means that I need to borrow that much more.
QE devalues all dollars equally, but then who receives that wealth? Do all people receive that wealthy equally? Do poor receive that wealth? Do rich people receive that wealth?
Because that money is eventually spent by the govt, whomsoever receives that wealth gets the redistribution of wealth from everyone to them.
Those concepts aren't really mutually exclusive in this case. What's it matter if the money is being conjured out of thin air by a central bank or being pulled from a billionaire who would otherwise park it somewhere? Either way it's going to create a whole lot of extra demand and cash being spent on goods & services, which will drive inflation.
Can you honestly say that, within some defined boundary, whether you think of it as geographic (some predominately low income community) or by product segment (local real estate markets for example), that the money supply hasn't increased after this policy?
Are there not now more dollars chasing the same goods?
I guess $15,000 at the bottom of the market would not tend to have huge localized effects on housing (I think people would be more inclined to move towards cheaper housing than to compete for scarce housing; the $15,000 eases pressure on moving to better paying jobs).
For goods like food, the supply is pretty freaking elastic.
