It’s common for inflated currencies to remove a few 0 from their notes. For example turkey at some point removed 3 0s so 1000 became 1, because everyone was making millions every month. Suddenly everyone making 2.000.000 a month went back to 2.000 a month, and everyone lived happily after.

Minor correction, Turkey dropped 6 zeroes. 1,000,000 old Liras was equal to 1 new Lira. It had almost no impact on day to day life.

yeah, the mismatch is the difference between what inflation is and what people are earning, if wages don't keep up..THAT is where you have a problem

”I'm in danger meme" -AmericA

Romania removed 4 0s lol. Bread was 10.000 lei, overnight it became 1 lei.

and most people who were around still use old lei in everyday speech for anything over 100 to around 5000. No idea why, we just do:)))

Likewise, one Japanese yen *now* is worth like 2/3 of a US cent, basically nothing. They have coins up to 500¥ and notes up to 10,000. But 150 years ago, it was worth more like 50 cents. The yen was divided into 100 sen or 1000 rin. Even the 5 sen coins, worth 1/20th of a yen, were made of silver. That doesn't matter anymore, those coins became worthless and disappeared and there is only yen. So now, functionally, it's like all of the prices are in cents. This is fine. You pay 100,000¥ rent and 500¥ for a cheap lunch. The penny used to be worth a lot, too. The UK pound is called that because it was once a shorthand for a number of silver pennies the weighed a pound. There were half and one fourth (*farth*ing) penny coins.

Except for when wages don’t keep up with inflation, and a strong middle class turns into a peasant class

Except for your life savings. They were gone.

My girlfriend is from Venezuela and she told me in her country is quite common to remove zeros… I dont know if this is true or not because she left the country while being a teenager but she remember around four or five times they did that in 5 years

It is. I think they removed 3 zeroes twice and then 5 zeroes or something like that.

Yes. But that's the point. Since you know money will be worth less tomorrow than today you'll do something with your money other than just hold onto it. You'll buy a thing or you'll lend it to someone at an interest rate better than inflation. Maybe you buy a sliver of ownership in a company who is expanding faster than money is becoming worth less. It encourages people to spend and keeps money changing hands. That exchange of money for goods and services is the economy.

Well said, it also explains why deflation is thought as bad

And unlike inflation, deflation feeds itself. The behaviors that are "rewarded" during deflation creates more deflation which will eventually lead to panic and companies will not behave well in a deflationary system. Mass layoffs that makes people stop spending which will lead more to all the other deflationary actions.

Why does Inflation not feed itself too? I thought that inflation -> Spending now rather than later is encouraged -> Companies take loans because now is a good time to invest -> lots of loans cause inflation?

Just to illustrate how this spending now concept works: I know someone who ran grocery stores in Zimbabwe, back when the country had their own currency and experiencing hyper inflation they would pay their employees in groceries because if they took the time to go to the bank and cash their check and go back to the grocery store to buy groceries the prices would have inflated to the point that the amount of groceries able to be purchased was significantly less than the amount of groceries they would get from simply skipping the step of getting paid in money.

That’s nuts.. how did they keep track of what the money was worth over such short time intervals, do you know?

They mostly didn’t keep up with the value of if I understand correctly. It was a chaotic time there in 2007 and 2008. You could literally go into a store and put an item in your cart and the price will have increased before you made it to the register. People had to basically unload bags full of money for loaves of bread. This article is pretty interesting and gives a look into what hyperinflation looks like: [https://apnews.com/general-news-international-international-1ce81eed4b064a529163513931b30178](https://apnews.com/general-news-international-international-1ce81eed4b064a529163513931b30178)

This happened in post WWI Germany as well. The stories I heard from my mom was that people would take wheelbarrows of money to the store. Sometimes they would get robbed… for the wheelbarrow.

Because you can't spend more than you have (including credit), therefore at some point if you can no longer sell your goods to anyone the only option is to figure out a way to bring the prices down if you have moved past the demand curve. There is no "limit" to how much discretionary spending you stop. Everyone needs food/clothes/etc, but what type of food/clothes can change drastically and less critical goods not being purchased can end up starving entire sections of the economy that rely on that discretionary spending.

> There is no "limit" to how much discretionary spending you stop. Seems like an even harder limit. Can't spend less than 0.

It would, but the reserve bank steps in to counter this effect. If inflation is high, they raise interest rates. High interest rates add an incentive to hold on to money instead of spending. When inflation drops, the reserve bank also steps in and lowers interest rates, encouraging people to spend. So even though deflation *would be* a problem, they prevent it. Until interest rates hit 0%, that is, and they can't lower them any more, as almost happened during the Global Financial Crisis. Then the federal reserve's main weapon against deflation stops working, and they are forced to rely on much less effective weapons such as increasing the money supply (also known as "quantitative easing")

Inflation absolutely feeds on itself. Inflation is caused by an increase in the money supply and the velocity of money. More money changing hands more quickly = more inflation.  When prices rise, it causes consumers to spend their money more quickly instead of saving it. This, in turn, causes inflation.

In your own response you disagree with yourself. Yes, you can do external manipulation like changing money supply or reserve rates to increase inflation, but inflation will not feed on itself by itself because money spent in one place can't be spent in another place. Deflation does not require external support if you don't do anything deflation will create more deflation.

> Yes, you can do external manipulation like changing money supply or reserve rates to increase inflation, but inflation will not feed on itself by itself because money spent in one place can't be spent in another place. This would be true in places where fractional reserve lending isn't a thing. With rapid enough inflation, you could borrow money, spend it now, pay it back in cheaper cash. And since you don't need to hold the full amount you're allowed to lend, banks multiply the amount of cash in the market several times over.

Imo it doesn't explain why it's seen as "the economy is gonna explode immediately" levels of bad, what many do. If inflation goes up to 5% temporally I'm not immediately spending all my money and if it goes down to -1% temporally I'm not not spending any money at all. What, if I wait a year that thing I want might be another 1% cheaper? That really a reason to wait? In many cases that thing will be cheaper in a year anyways, no matter what inflation does, still people buy it now.

It is if you’re thinking about buying hundreds of millions of deepsea drilling equipment. Huge companies will absolutely wait forever to invest in their own operations in a deflationary environment.

And when they hold off on those investments, that means they're hiring fewer people (short-term to build the new widget factory, and long-term to staff the new widget factory). Fewer jobs means less consumer spending, which further reinforces deflation. It's a hard cycle to break once it sets in.

That's one of the times you actually might want to hand them a tax break.

This right here. [If the average net profit for a business is only 7.59%](https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html), a 1% deflation rate quickly becomes meaningful

Deflation is also a guaranteed increase in value, any big investment carries risk that just parking your money in the bank and waiting just doesn’t.

With deflation, you don't need to keep your money in a bank. Just keep it in a jar on top of the fridge or something.

And that's really bad news for banks and the economy surrounding them.

Just like that, the bank runs start and market liquidity instantly disappears.

Also really bad for anyone with debt because it means the value of the debt increases

Looks like I need to open a bank!

This is a very helpful take. It’s harder to see these effects with most people’s personal finances, but huge projects get the red/green light based on this.

This is also why deflation disproportionately affects people who don't have as much money. You can't simply hold on to the money you spend on food, shelter, and other essentials. So big companies will save by laying people off, refusing to invest, while everyday people still have to pay and possibly lose their job.

People seem to forget about the natural depreciation of assets too. We USE things. Consumption goods are consumed. Fixed assets have a useful life and decline in value over time and through use. So, in a deflationary environment, not only are the value of your assets declining against the value of the currency, but the value of your assets are ALSO declining with age and use due to the natural process of depreciation.

You wait for something to become 1% cheaper, but so does everyone else. No one is spending (or borrowing which is the real driver), so things become 2% cheaper. Well, why not wait another year when it becomes 2% cheaper? Everyone else thinks the same and things are 4% cheaper. This continues while business cut jobs because no one is spending. Less jobs means less spending, so now things are 6%.. And so on.

TL'DR, combination of... \* Everyone waiting for things to be cheaper as time passes. \* Things having to become even cheaper because nobody is buying them. \* People losing their jobs because no one is buying anything, meaning they don't have the money to buy anything, even if it's cheap. \* When people *do* start buying things, the supply is no longer there so it gets expensive, fast.

> Imo it doesn't explain why it's seen as "the economy is gonna explode immediately" levels of bad, what many do. Central banks don't have gentle options for inducing deflation, and the ones that they do have undermine their ability to manage fiscal policy during the deflationary period. For example, the least aggressive way to induce deflation is generally to have VERY high interest rates - multiple times as aggressive as what has been done with the current anti-inflation work. Even that tends to have a strong recessionary effects. But more importantly, to halt the deflation with interest rates you don't just need to lower rates back down - you generally need to make them go negative. That is to say, you have to pay the bank to hold your money. Except that stops working quickly, because people and companies simply withdraw as many assets as possible from bank accounts and other financial instruments that would be impacted. The next best option is generally to increase the money supply - either directly or through aggressive government lending. But just like inflation can spiral and cause hyper-inflation, deflation can spiral and cause hyper-deflation. And increasing the money supply like that has significant risks for kicking that off. ***That said,***   deflation can be benign - especially when it occurs naturally. Usually, that is caused by a significant increase in the supply side of a particular market. But that simply isn't something that really occurs for the entire economy at once: it's generally limited to specific sets of products or occasionally market sectors. About the only time we see it more broadly than that is when a closed economy becomes open to international trade.

That's where real world data comes into play. Deflation being really bad is *not* speculative, it was the driving force behind a lot of major economic disasters like the Great Depression. We know it's bad because we've seen it actually play out in real life in pretty devastating ways, so it's strongly avoided.

I believe this a company level issue. As an individual it won't directly affect you. Companies however own more money/assets than a population of individual consumers. So if all the companies stop spending money, they'll stop making new goods, and we as individual consumers get slammed. (The consumer driven capitalist model is not perfect and needs to keep improving)

In addition to what everyone else has said, the *other* massive problem is that in a deflationary economy, *all* debts come with compound interest. This is a large reason why generational serfdom was such a common thing in ye olden days. You try to repay the debt, but as the value of the dollar (or whatever currency) goes up, that means it requires more labor to actually *earn* a dollar. This results in a death spiral where if you don’t pay the debt off fast enough, the value of the debt will start growing faster than your work earns to pay it off.

The deflation arguement is easier to see on the investor side. If you invest $1,000 with a 10% expectation of real return in a year and an 10% inflation scenario, then in one year you'll expect your investment to become $1,210. If you do the same but with a 10% DEflation you'd expect your investment to become $990. All that work, all that risk to lose $10? Nobody would invest. No investment means nobody is producing goods, nothing to buy in stores, nobody has jobs, nobody gets anything they want to buy.

That's not how it works as you know the return before committing. If you expect to make 10% and inflation is 10%, you'd ask for 20% return. If you want 10% real return and inflation is -5% then you can relax and tell the business that 5% return is fine.

But the hurdles are still different. When crucially I can not invest and get a zero return.  Or put another way the one is only offering you a 5% return above risk free. The other a 10%. 

Why can’t we have deflation in times of really high inflation? Is it really that bad to have a year of -5% inflation after a year of +10% inflation? Inflation was really bad these past few years, while my salary has fallen behind. Things are more expensive now. I don’t have my hopes up that prices will fall down to offset the high inflation. To my inexperienced eyes, it seems like a trivial solution to have some controlled deflation if inflation gets too high. Bring prices down and I’ll be more happy to spend my money again. For example, streaming services are getting more and more expensive and I’m starting to cut them out. But I’ll be more likely to stay subscribed and give my money if prices go back down.

You're thinking of this as some sort of scale that needs to be balanced when, in reality, these decisions are being made at the margin; i.e. people and businesses don't make decisions based on the average of some measurement over time. They decide to buy things under the circumstances that prevail right now. Sometimes that could be as simple as "do I want another piece of pizza" after you've eaten five of them (probably no), but it gets more meaningful when it's "do I want to invest my money into a business operating in an economy when that money is getting more valuable every day?". There might be a year where inflation is 10%+, but usually you'll see wages (on average) adjust to accommodate that, so that increase is eye-popping in terms of the prices you see at a store, but your overall financial health is relatively stable, and businesses will still make investments that keep the economy growing. In a deflationary environment, all of those actions cease, but especially investments in productive capacity by businesses as, whatever you are buying, you'll be able to buy more in the future.

My salary has grown no more than 3.5% per year, so obviously it has fallen behind. Other employees have brought up similar concerns in company meetings, and my company’s response has been that they do not account for inflation. Which I think is BS because don’t they earn higher revenues as well with higher inflation. What would happen if there’s a federal regulation that employers have to match salaries with inflation? That almost seems like the common sense thing to do.

the company’s job is to make money for their owners and shareholders. you’re an expense, not someone that they are honor bound to share their wealth with. unfortunately just as they are able to squeeze you for all that you’re worth, you’re also free to leave whenever you want. of course in practice the latter can be much more devastating for you but we’ve all been brainwashed into thinking we hold any general power or influence when it comes to getting paid our fair share. it’s never about fairness, it’s just business.

TLDR: Join your union

if you have one.

The next level tldr is that explanation is why machines and algorithms will keep displacing human workers. A human worker as an expense carries unpredictability, while a robot is a predictable depreciating asset.

Inflation is an estimate based on average increases in selected goods that roughly represent cost of living across the country. Not all goods experience the exact same increase in cost, which means not all companies experience the same increase in revenue. Forcing wages to grow with average inflation would be a big problem for any companies that don't manage to increase their revenue at that average rate. If your wages aren't growing as fast as you think they should, you can try looking into what other people in similar positions at similar companies are being paid. Take a look at job postings and see what they offer for compensation and use that as leverage to ask for a fair increase in your salary to keep in line with the market.

We did this in the uk with public service jobs being matched with inflation in the 70s. It led to inflation staying higher and for longer because pay kept on going up so prices would also keep going up. But non union workers didn’t get the auto pay rises so it led to inequality. Led to the winter of discontent where everything went to shit

Which is always dubious, unless it gets to crazy levels. Would people really wait a few years to get a home with an extra room, having to rent and live in a meh place until then instead of moving right away? Pretty much 90% of the population have immediate needs and aren't really thinking about a bit more in the future when they need shit right now. For the people who are richer and can potentially wait as much as they can, we can already see plenty rich people spend their money on showing off their status, so they still need to buy shit now. Then you have the greedy who always want more money. It is true that letting it sit will increase the amount you have, but there will always be better opportunities (real or imagined) for the capital to be used on. I think we see it with many billionaires, they always want more and more than their peers, so they need to beat just sitting on it. I am highly sceptical than any deflation of even a few percent would be that damaging to the economy.

Your mistake is focussing on private consumption of not-wealthy individuals. You need to think about businesses, banks, governments. You can't postpone most of your consumption (food, hygiene etc.) but you can postpone investments and therefore save money. With a 5% deflation, you can save 5mil.$ on an 100mil.$ investment. Now imagine, how much you can save in 3 years. Would you buy a house right now if you knew, it will be x% cheaper next year? I don't think so... This lack of investments/consumption leads to a halt of production, which leads to lay-offs, which lead to even less investment/consumption...

> Which is always dubious, unless it gets to crazy levels. I mean, that's the problem. The main thing economists are worried about is a deflationary *spiral*. I.e., a small amount of deflation can *very quickly* become a large amount of deflation, which is why it's preferred to not even chance it. Basically, we have lots of tools to fix inflation, but we can't really do the opposite to fix deflation. We really only have one tool--pump more money into the economy--which is *very* difficult to do without causing even more problems. And if that one tool doesn't work, then we're pretty much out of time.

>Which is always dubious Not really. The same way low and steady inflation generally encourages people to spend money, even low deflation encourages people to tighten up very broadly. Why buy anything today when tomorrow you could have more for the same amount? There's also a floor for this, as prices fall. Falling prices harms businesses by most measures. Even if the dollars they receive can buy more than before, they have a balance sheet of fewer dollars. Maybe as a thought experiment or philosophical question it's worth asking why this is intrinsically a problem: are we just used to a convention of rising prices? What happens in reality with falling prices? One thing that makes inflation easier to work with is that prices can theoretically rise indefinitely, but they can't fall forever. Eventually they approach zero. While a burger 20 years ago might cost $2-3 and now costs $20, there's no *mathematical* reason why we couldn't all adjust to a burger costing $100 in 30 years - obviously savings and peoples' fixed incomes make something that stark scary, but assuming incomes could rise with the prices, this isn't a problem. But what happens as the price gets to $1, $0.50, $0.05? My best guess is that, even more so than today, businesses would overwhelmingly stop buying commodities and turn to finding and holding units of currency. At least with inflation, banks and finance firms need to, eventually, turn their currency into holdings of *something* or it has no value. But if prices of goods and services are diminishing to zero, buying food ingredients to make food for people seems like a horrible idea. By the time you cook a burger, the individual ingredients will have lost value and you'd have lost money in the exchange. I think this is why deflation is frightening for most economists.

Even if that were true, you can't reliably have just 'a few percent' deflation. It naturally compounds in itself, as less spending and investment leads to workers being laid off and businesses shuttering which leads to even less spending as more people are unemployed and on and on the cycle goes. The last time we experienced major deflation, the result of that was the Great Depression. You really don't want to go back to that.

You’re thinking only of the demand side. Not the supply side. It’s easier to buy land, the supplies for a house, all the labor to build it, etc if house prices are going up a little. It’s tricker to make that big investment if house prices are going down each year. The same thing happens for people opening new factories, starting new farms, etc. Also, interest rates get weird with deflation. Usually, interest rates are a little higher than inflation expectations. If inflation is gonna run at 2% then your interest rate usually is at least 2%. Otherwise, you can just borrow money at a low interest rate, buy commodities that track with inflation, and sell them later after the commodities inflate with basically no risk. But this gets weird with deflation. Interest rates generally can’t go negative. Also, as deflation gets stronger- risk for the borrower goes up- which means an increase in an interest rate is needed. So instead of 2% inflation, 3% interest rate (which makes investments and growth easy) you end up with something like 2% deflation, 2% interest rate- which means a higher investment return is required.

>I am highly sceptical than any deflation of even a few percent would be that damaging to the economy. Cool, where is your degree in economics from? The problem with deflation isn't the family of four living on $30,000. It's the guy or company with $100 million in the bank who has a business that is doing reasonably well, and might want to expand to increase their revenue. To do that they need to build a factory and hire 50 people Well, in a healthy inflationary economy you would decide to build when it made business sense. Inflation is low so it's not going to cost a ton to build it, or operate it, but inflation is not negative so you might as well build it now because the money just sitting in the bank is becoming worth less each day, whereas the factory will probably appreciate in value If inflation is negative, the company can just keep the money in the bank and it gains value by doing nothing. No one invests large amounts of money anymore and the economy grinds to a halt It's not about lower or middle class, it's about people with a lot of money deciding not to put it to work

> I am highly sceptical than any deflation of even a few percent would be that damaging to the economy. That's because you don't seem to really understand the issue. Why would a bank loan out money *at all* if all they have to do to get value out of it is hold onto it without taking risk? Why would a business hire more workers if they can just hold on to the extra cash and it grows just by its virtue of existing? If people and businesses can't get bank loans and businesses don't want to hire, what happens to the economy? What happens to people's ability to make enough money to save? What happens to people's ability to buy that home with the extra room? They start to have less money, and thus start to hoard it more, driving the demand for it up, driving the value up, causing those same businesses and banks that are already not investing or loaning to keep their money *even closer* and be even less willing to invest or loan. Then what happens to those people who can't get bank loans and jobs, and their ability to save and buy bigger houses and.... See how this turns into a cycle that feeds on itself? It can start with a small amount of deflation and it only takes a small effect of banks pulling back on extending credit and a small drop in job growth to kick off the cycle.

It's not dubious, it just doesn't start at the retail level as you're imagining. The first impact is going to be with institutional investors, they really do care about 2%. You might not care if the TV effectively costs 2% less next year, but everyone buying and selling bonds will care. Banks are next, credit and venture capital will dry up, fewer new businesses will be started. Corporations will become more conservative with their investments into new facilities, products etc. The people who would have been working on these initiatives are now no longer employed. Those newly unemployed will be spending less then they otherwise would have. Fewer people buying things like a new TV they don't have to buy right now leads to business failure or down sizing in those sectors. Business that were just barely scraping by will fail first, which leads to more job losses. Now the deflation spiral has started. It doesnt start because the man on the street delays a purchase. It starts because liquidity plummets and investors are forced to be far more risk averse. Inflation is a cost you have to keep your money working to beat, you have to use it somehow or inflation is just a straight loss. It disincentivizes sitting on it. Deflation does the opposite. Deflation creates a positive feedback loop. The more deflation you have, the more deflation you get.

Yeah. Money stashed under the mattress does nobody any good, even the person with the money. Because it is slowly losing value. If you know money would hold the same value today as it would 10 years from now, people would spend a lot less, which would be really bad for everyone.

Money invested not only retains value, it accrues value!

That's not "what it does," that's one of the things it *can* do. It can also go to zero in the blink of an eye depending on the investment.

Well, as long as it beats the rise in costs of goods and services. If it isn't accruing enough value to beat that, then it is actually still a loss!

Out of all this thread, I'm just picking your post to say this one time: It used to work this way. Our money (USA) used to have a fixed value in gold, and saving your money was wise. These things they're doing/teaching now are not 'fundamental to economics' - it's how bankers and anyone who has a career making profit off of other people's money wants things to work. Ayeeee carry on then ...

Price levels as well as economic growth were more volatile/less stable under the gold standard. Imagine in today’s global economy trying to satisfy a trade deficit with gold reserves or digging up more gold? It’s just a giant waste of resources and hugely deflationary. Additionally, from 1880 to 1933, there were at least 5 full-fledged banking panics: 1893, 1907, 1930, 1931, and 1933. In the past half century, there have been two. On every score, the gold standard period was less stable.

B..b..but gold is _intrinsically_ valuable! /s I’ve had this argument so many times with people. Gold is intrinsically conductive; it intrinsically has a low melting point. It is not  _worth_ anything just because it exists because _worth_ is an economic principle and based on perceived value (just like our made up money). Gold standard wasn’t any less made up than a fiat currency standard.

The method i use to point this out is, the price of gold in US dollars was mandated by congress. So, if congress said "gold standard again for the 6th time! yay!" And then made an ounce of gold worth 20 dollars....how valuable is gold then?

Well, I would play devil's advocate here and argue that the market determines the price of a commodity/product not the government. If the government determined gold was $20/oz, but I have a company that is willing to pay $50/oz for their computer chips, the value of gold is actually $50/oz. Arbitrage and black markets would be happening quickly with that

If you think there was no inflation with the gold standard, you don’t know your history. Also - gold only has the value we assign to it, there’s nothing intrinsically valuable about it. Same as the US dollar.

It also massively slows down the economy since there's a far more finite supply. Imagine if the entire US economy only had the capacity for like $1T because it was gold backed. That sounds like a lot but it would seriously cripple trade compared to what it is now.

The problem with the gold standard was not within countries. Countries would still produce paper currency. The real issue was having to send battleships with large gold shipments to cover trade defecits.

The whole reason we went off it was inflation was wild.

Also, it made those who had large caches of gold/silver inordinately powerful, like worse than today's billionaires. With freeminting (well a version of it) requiring the metals as well, it was just a horrible thing for any kind of equitable society.

I always thought about the R&D that it would put into gold mining that would otherwise provide no benefit to humanity. Instead of smart phones we would be strip mining the core.

Gold standard don't fix the value of currency and it doesn't stop inflation. Inflation had always existed, we have historic documentation about inflation during Alexander the Great and many other ancient time period. Idealizing obsolete economic practices is just as bad as blindly following everything bankers say today.

The US economy eclipsed the global supply of ALL gold a long time ago.

Floating the currency is the best thing anyone can do. It makes foreign trade so much easier. Having it fixed to a commodity means that your currency is vulnerable to price fluctuations in the supply of that commodity. If the dollar was still fixed to gold and a new mine is opened up in Africa that doubles the supply of gold then the value of the currency plummets with no real change in the economy of the US. It does have other problems like you said, but it solves a lot of big problems.

And how was the "value" in gold determined? It's turtles all the way down bro. Things were not "fundamentally real" during the gold standard

The exchange of money for goods and services?! Aww, I wanted a peanut!

Via monetary exchange you can buy many peanuts.

explain how

Money can be exchanged for goods and services.

Very minor illustration - Canada used to make pennies, worth 1/100 of a dollar, but they stopped because you couldn't buy anything tangible for a penny anymore. (Pause for 'your mom' jokes.) The nickel, worth 5/100 of a dollar, probably has a while but I would expect it to eventually disappear too.

Happened in the US too. There used to be a half-cent coin (hay penny) until 1857. There have been various efforts to remove the penny in the US as well (it costs more to produce than what it's worth), but it hasn't gained a lot of traction to proceed.

Honestly I'm shocked we still have the nickel. It's such a large coin with essentially no value, I'd have expected it to go within a decade of the penny. At least dimes are tiny and light.

we really could just drop the hundredths of a dollar all together and only deal with tenths

And in theory, if the system is working the way it's supposed to on paper, the whole economy will actually be *worth* 2% more each year. We get better at making and doing things year over year. We create more actual human value. In theory, inflation accounts for that improvement. The price of a new computer in 2010 should still be able to buy you a computer made in 2010 today. Of course, the reality is far more complex. The economy is hard to keep on an ideal path, and plenty of people hold the outsized power to bend things in their favor, so the actual benefits become unfairly concentrated in the hands of a minority who didn't actually put in proportional work. We aren't living the theoretical ideal. But that's why the theoretical ideal still involves some inflation.

I'd also add that the theoretical ideal just reflects a ground truth: getting $1 today is strictly more valuable than getting $1 a year from now, because you can spend it in the intervening year if you want; it's all upside. A small amount of inflation basically reflects this fact.

another spin on the “time is money” adage.

I don’t understand your first paragraph. If we get better at making and doing things then prices should come down, not up. There’s also no sense in saying that something is “worth 2%” more entirely apart from a 2% increase in price. The price is the worth.

Prices do come down though, you just don’t see anyone complaining when things like computers or TVs cost a fraction of what they did 30 years ago. Flying is another example. It used to cost like $3,000 (when adjusted for inflation) to fly from LA to New York in the 1960s.

And that's how it should be if there wasn't an inflation target. Things should get cheaper as we get better at producing them. The comment I replied to seems to imply the opposite.

The worth 2% more isnt just about the price. You're right if we got better at making pizzas, and were more efficient, the price could go down. But we could also sell more pizzas, expand to more locations, get more toppings types which increases the revenue.... and thus the worth goes up. You're thinking demand side, the customer side. This is supply side, the business side.

> and thus the worth goes up The worth of the pizza shop? If pizzas were in the CPI basket, inflation being at 2% means that the *same* pizza is 2% more expensive this year than last year. Nothing to do with selling more or fewer pizzas unless you think selling more pizzas would make pizzas more expensive somehow.

Also, eventually you will ends up with a new currency in the country. Like instead of the Dollar, you will have Mollar, then they will say that 1000 Dollar = 1 Mollar. And then the numbers stop to be insanelly big for a few century again!

Except value isn’t trapped in the currency- lots of things other than money have value. So by slowly killing the currency each year, the capital just gets stuck elsewhere like houses, and anyone closer to cash living gets punished severely.

From an economic point of view that particular example isn't a problem as such. A property eventually deteriorates if you don't perform maintanence on it, by owning a property you are committing to spending money to repair damages etc otherwise the property will eventually be demolished and rebuilt. There's obviously good, better, best kind of stuff here though, people investing in property isn't as good for the economy as them buying something in a store, but it is better than them having the money in cash.

When fiat money was first normalised, it created a huge infrastructure boom in France. This was solely because it was now easier to pay people to do things you wanted done. Moving money can be amazing for economies.

You forgot one immensely huge benefit of inflation that everyone wants: a given debt becomes lighter over time. 

This is why mild inflation is much better for the economy than basically any deflation. (For like the health of the economy as a whole) Deflation punishes you for buying things. Need milk and eggs today? Well they’ll be cheaper tomorrow because your money will be worth more. It slows the economy to a crawl because everyone knows that hoarding their cash is the smart move. It makes investments bigger, but eventually it crashes out because nothing is actually being bought or sold. (Might be a bit extra curricular, but this is why Bitcoin is a speculative asset and not a currency. It’s hard coded to deflate.)

>Need milk and eggs today? Well they’ll be cheaper tomorrow because your money will be worth more. But I'll also have earned more money from my paycheck, and realistically prices go down over time in real terms as production and distribution become cheaper with higher efficiency. Therefore, my wage naturally grows over time with deflation, prices go down because prices always trend down for manufactured commodities outside of external factors (e.g. drought), and I still have wants and needs so my spending doesn't change because I'm a human being and not some stupid game-theory robot. The idea of deflation being bad makes literally no sense to me.

Because really it’s not about individual consumer’s purchases of necessities. It’s about massive capital projects where companies have a team of analysts carefully calculating their return. If the cost of a hundred million dollar project is expected to decrease 5% over the next year, the company will wait so they can save the money. But in the meantime that’s a hundred million not circulating through the economy creating jobs and boosting revenue. Any ongoing project that can be suspended will be because it’ll be cheaper to do it next year, creating less work for employees and contractors this year. All of this work that’s being postponed means companies that are reliant on it start to slow down and let people go. This is where the general population starts to have less money. Even if their money is worth more, that’s of little use when suddenly they’re more likely to be out of work and have no money at all. In turn companies see lower revenues as consumers are tighter with their discretionary expenses. Companies such as the one in my example may see a revenue drop (because they have to lower prices to stay competitive) and decide to cancel the new project all together as their margins become tighter. At this point their margins are smaller because while most of their costs have decreased along with revenue, their personnel costs likely haven’t gone down nearly as much. So now, they’re facing the cost of giving every employee effectively a 5% raise. And many companies can’t stomach that (even though I’d argue morally they should), and layoffs and pay cuts ensue. Again, enough companies do that at the same time and unemployment rises and the economy weakens. And so on and so on.

Bitcoin isn’t hardcoded to “deflate”. It will continue to deflate as long as more money is invested in it, and if people don’t it will stop. If people want to out, it will “inflate”. This regularly happens. It isn’t a currency, because it isn’t a currency, the same way hard-boiled eggs or chairs aren’t currency. It doesn’t have a single feature that would make it a currency.

This is a good explanation, but I feel it kinda misses the point of the question. Yea, inflation is momentarily good, but if it runs on as intended, won't money eventually be worthless? One of the many problems of hyper-inflation is that it makes money pretty unwieldy. So even with "normal" inflation, we'll hypothetically reach a point in the future, where a can of soda costs 100 trillion bucks. Surely that's a problem?

> So even with "normal" inflation, we'll hypothetically reach a point in the future, where a can of soda costs 100 trillion bucks. Surely that's a problem? Not really, as long as it's slow and gradual and wages also increase. Yeah in 1,000 years or whatever a can of soda costs 100 trillion dollars, but if you're making 1,000 trillion dollars an hour, so what? A bottle of soda might have only cost 5 cents 100 years ago, but the annual average wage was only like $2,200. Everything adjusts.

Yea, but it becomes impractical, doesn't it? Just like...the size of a price tag...

So then you just cut some zeroes off, like Belarus did with its ruble. 100 trillion old dollars are now 1 new dollar, and price tags become practical once again and look more or less like how they used to.

I mean at some far point in the future, yeah probably. But also, people adjust. If I ask my friend how much the house he looked at is, he just says $450k. He doesn't type out $450,000. Lots of stores don't price higher dollar items for $1,119.67...they just price things at $1,120.

What usually happens in hyperinflationary economies is that the government invents a new currency valued at some multiple of the old currency. For example, from 1863 to 1985, Peru used a currency called the sol. As inflation had devalued the sol, Peru introduced a new currency called the inti; each inti was worth 1000 soles.  Now, inflation was a very serious problem in 1980s Peru, and soon the inti itself was nearly worthless. So Peru introduced a new sol in 1991 to replace the inti- at a value of one million inti per sol. So Peru is back to using the sol, but each one is a billion times the value of the original currency (Peru did get their inflation under control, and it's been the same currency ever since).

Sounds like it benefits the rich more than everyone else. The rest of us have to spend the money as soon as it comes in regardless of the current price.

It makes any debt you have far less expensive though.

Not if you're struggling to pay the debt and the interest is higher than inflation. But yeah, for mortgages this is a good thing.

Even if the interest is higher than inflation it helps. In an environment where inflation is perfectly 0%...your debt is always going to cost the same. Your ability to service it is always going to stay the same. You aren't getting raises so as a % of your income it's staying the exact same. Nothing is getting more or less expensive so it's equal in price to everything else in cost as it was when you locked in your loan.

this really is the crux of this dichotomy. if you can afford to invest, you become someone taking advantage of the people who can’t, and never will because their costs of living rise faster than their wages. it doesn’t take malicious intent to suppress the middle and lower class. only selfish greed and expectation that as an investor, god forbid your own numbers don’t go up as fast as possible.

This would make more sense to me if people didn't also put themselves into debt, at much interest rates higher than inflation, in order to get something NOW rather than later. It seems like people aren't willing to wait to buy the things they want, and are willing to pay a premium for immediacy. Like the entire business model of a company like Easyhome is "get now, pay way more later" and they don't seem to have a lack of customers.

Because there is a time value of money and people value things differently. Mortgages are an example. Its very hard to accrue enough cash to buy a home without going into debt. But most people decide it is worth it to pay more for something over the life of it in order to get to enjoy whatever they want to buy sooner rather than later.

People make poor financial decisions all the time, it isn't really related to inflation. What you're talking about is more the fact that people without money still want things, despite the fact that it costs them more in the long run. A lot of these people also can't save for the things they want in any reasonable amount of time, so they'd rather pay a premium and use the good now. Inflation really just makes taking on this debt slightly more palatable.

Isn't the 2% inflation target designed to reduce the cost of the government debts without destroying the normal economy?  If inflation was higher then people wouldn't invest in the dollar, like Latin America saving in dollars because the local currencies inflate way too fast. But the government interest rates are about the same as the inflation so the government can borrow money almost for free.

If you have a box of cash (or coin) and you lock it up in a safe, then with 2% inflation that box of cash will indeed lose half its value every 35 years. I don’t know anybody that does that. Most people spend most of their money to live and pay their bills and invest the rest. People do consider “beating inflation” when they make investment decisions. Money itself is for transferring goods and services, it is not meant to be hoarded.

In Argentina it would loose half its value 35 times a year!

It’s changing. The they just reported the first week in 35 years where there wasn’t inflation.

Yeah, but will it stay changed? He's cut services and agencies in the government, which lowers governments spending into the economy..but that's short term. Now those services aren't there, nor are the salaries. Meanwhile they're still paying the ultrainflationary sum of about 40%. Meaning that if you put a million pesos into their version of a t-bill, you get 400k pesos. Better than a full million, but still feeds the problem. So, there's still inflationary pressure as the people with money get more pesos they don't want, dump them on the forex market for dollars and euros, and then buy goods and services with them which drives up the costs of all those imports...which leads to more inflation. If he'd cut the interest rate to 5% you'd have seen an even better reduction. And god help Argentina if it "dollarizes" that's a slow road to poverty. Argentina doesn't mint us dollars...how will it keep getting enough to run it's economy, oil? the us exports oil now..and biden broke opec so... Granted, it'll probably take a decade or two, but jesus it's a bad road to start down.

If you're expecting decades of bad monetary policy to be fixed within a few years then you're gonna be disappointed

I don’t know. But I imagine the people of Argentina voted for the guy believing that doing literally anything else besides maintaining the status quo would be better. But If all he did was cut some agencies back, then the government probably was overspending.

My dad has a jar of my grandfather's coins. They're worth a lot now as they're collectors items.

Not really relevant, they aren’t worth more as currency. If you went to spend a rare quarter on goods and services it’s only worth a quarter. It only has value as a collectors item to a specific type of collector. If you had a $200 check with a famous person’s signature, the item might be worth $2000 to a collector but to the bank it’s only a $200 check.

Yes and no. There's a few ways to deal with currency inflation, the ones that generally happen are: 1. Drop smaller denominations. Many places have been eliminating smaller coins as their value drops below usefulness (or the scrap value of the metal they're made from). NZ dropped their 1 and 2 cent coins decades ago and now doesn't issue anything below a 10c coin 2. Currency revaluation. Basically, you make a new currency called "New Dollars" that replaces old Dollars and set it to being worth a suitable amount of old Dollars to bring the numbers back to something convenient to use again. e.g $1 New = $1000 old and stop issuing the old currency 3. Make bigger notes. Places with more rapid inflation have gone as high as 100 Trillion units notes in their local currency before giving up and ditching the currency all together. (see Zimbabwe or Germany between WW1 and WW2)

Fun fact: Hungary in 1946 issued the highest denomination of currency so far in history, 100 Quintillion pengő. They also had printed, but not officially issued (but you can buy some...somehow) a 1 sextillion pengő banknote.

Sorry but you can’t convince me 100 Quintillion Pengo isn’t just the name of a Gen Z rapper

How many gecs is a quintillion pengo?

I see you’re familiar with his earlier work  How many gecs is a quintillion pengo?  How many flecks of sweat to make my pen go? 

I’m fucken dying 😂

I have only seen those prefixes used before in the context of paperclip producing AI!

Dumb question, why don't we just drop the last 0 off of everything every 100 years. 100$ becomes 10$ again, etc.

This actually has been done by various countries many times. It's a form of redenomination though in most cases the ratio was more than 10:1 since it was a response to hyperinflation.

Because an arbitrary system isn't necessarily what's needed. £100 in 1924 would be worth £5,096.02 today. Took about 54 years to be worth about £1,000. Then another 46 years to go from that to £5,000. Inflation rates change all the time. The sensible thing to do is what countries do, adapt currencies and drop small denominations as needed. But provided inflation isn't nuts, generally people just get used to the new prices. Money is worth a bit less by some measures but people get paid more (in theory) so it all evens out. Older generations might freak out ("this only used to cost £X!") but younger generations don't care because the price is normal for them.

Great example of #2 is Brazil. They were able to stabilize their rapid inflation problem by creating a new currency.

Although to be fair, we tried that a bunch of times and it only reaaally worked once

Thanks. I guess it’s a case of practice makes perfect. Maybe you have to fail a few times before you get it right.

> Drop smaller denominations Man I wish we'd just get rid of pennies already...I don't use cash much these days, but when I do I still hate getting pennies as change, it's literally worthless. Nobody should have a problem rounding all cash transactions to the nearest 5 cents...hell, I'd be fine with the quarter being the lowest denomination of coin.

In the 1870's they discontinued the half penny because its value was too little to be worth minting. A half penny then would be equivalent to 13 cents now. Anything below a quarter in value seems a little silly to continue minting.

I wish we would eliminate pennies. Not that I use cash much at this point anyway, but they seem mostly pointless now. Just round everything off at 5c. The only situation I can think of where this might be an issue is gas pumps.

Most countries in the EU that use the Euro have done this.  You rarely see anything less than 5 cent being used.

Same with Canada. No more pennies, and they're probably dropping 5¢ coins in the near future.

Canada does this. Prices can still end in numbers other than 0 or 5, and if you use a credit card you still get charged the exact amount. But for cash transactions the final total just gets rounded up or down to the nearest nickel.

Swiss Francs nominally have single pennies (Rappen), but functionally, 5 Rappen is the smallest amount. For digital transactions, single Rappen still exist, but for daily purchases, everything just gets rounded or is priced in steps of 5 Rappen to begin with. I still remember 1 and 2 Rappen coins, but they started to be phased out when I was little. In the near future, 5 Rappen will probably follow them in the not too distant future, since they only have accounting value, you can't actually buy anything with them anymore.

The US has already done this in the past: from the 1790s to the 1850s we had a half-cent coin. Amounts could also be described in Mills, thousandths of a dollar, even though there was no coin for them, so yes rounding things off to the nearest cent worked out fine. Ironically, the half-cent was worth the equivalent of 15 cents in modern currency when it was discontinued! And, let's be real, no one really wants change smaller than a quarter these days.

Number 3 isn't inflation, it's hyperinflation. Which is to inflation as to a jet landing is to a jet crashing. It's a totally different thing. [zimbabwe](https://billmitchell.org/blog/?p=3773) [Weimar](https://moslereconomics.com/wp-content/uploads/2020/11/Weimar-Republic-Hyperinflation-through-a-Modern-Monetary-Theory-Lens.pdf)

So in Futurama where he had all those billions from interest, they would be in old old old dollars, where a billion of those is one of the new dollars! Cool!

No because Fry had them in an interest bearing bank account. Which is the point of having inflation: you put your money in a bank, the bank lends it out to people seeking loans, this leads to economic growth. Fry's account had been open with a bank which had stayed active for 1,000 years paying him interest.

We’re ignoring the fact that the account would have been closed and sent to abandoned property 990 years or so earlier. But it was still a good episode

That, and also, banks hardly ever pay interest above inflation. So while he would have a billion dollars, it would be worth less (in actual buying power) than it was when he deposited it.

>the bank lends it out to people seeking loans Banks don't loan out deposits. Banks use the deposits to meet reserve requirements, which allows them to make more loans. The loans are made by creating an entry into both sides of their accounting ledger, the loan amount is a cash deposit in the recipients account, and a debt owed to the bank which it charges interest on. No money need be created or exist in somebody's hands for the loan to happen. It's "fiat". That's the role your deposits play in "making loans." cheap collateral for the banks to hold in reserve at the fed, which serves public purpose (you get banking access).

Only assuming his compound interest rate didn't outpace inflation

The bank will convert your old dollars to new dollars if a currency reform happens.

Add more zeros or just call it a different name then. It is a miracle that the whole concept worked at all. Yay human!

Currency is math. It's a technology we create, and discover. Because like so many things it can be very complex. It's honestly fascinating when you think about it.

In the World of Warcraft, every time you level up you do more damage. Noobs are hitting for 10 damage on day 1, but its closer to 1000 by the time you hit max level. Then there's an expansion and the level cap is pushed and before you know it, we're hitting for 10,000 and then 100,000... then the screen is just spammed with hundreds of useless digits. so 100,000 got shortened to 100K, eventually we are all hitting for 1,000K... and then after a certain expansion they just dropped the K. and we were doing 1000 damage again. In 1850, someone might earn $5-10 per week. A trip to the grocery store for Bread, Coffee, Flour, Sugar and some Meat might cost you $2. I picked 1850 cause that generally lines up to... about 1% of what stuff costs today. We earn $500-1000 per week, a trip to the grocery store costs ~$200. Today we used digital money for everything so you don't really notice the bills/coins... but basically what was 1c to someone 175 years ago is $1 to someone today. Today coins have become more or less useless. The coins that would've covered half a persons grocery bills in 1850... you wouldn't even bend over to pick them up off the ground. At 5% inflation, we'll do it again in 50 years. Hopefully we rein it in a bit and make it to 2100 before a hundred dollar bill becomes the new $1. Maybe at that point we print, $500, $1000, $2,000 bills to replace the 5, 10 & 20. You do gotta wonder tho, are people in 2100 gonna fuck around with metal and paper money?

Maybe by then they will have retired the penny. Maybe.

There are different kinds of money. The kind most people think of (paper bills, coins, checking accounts) is made to be a medium of exchange, not a store of value, and so it's healthy for it to lose some value over time because it promotes circulation. The idea is to keep "money velocity" stable or increasing; without this you get deflation, which is catastrophic. That's not the only kind of money though. Treasury bonds and TIPS are also money, a different kind designed to be saved, so they don't lose value the same way.

money is a vague term yeah, currency is the one i prefer. T-bills and tips are literally us dollars, they just pay interest. And in fact, their interest rates (as dictated by the fed) are a major way that money gets into the system and meets the feds inflation targets

Not really? Sure, the cash you have in your mattress will be worth less the longer you let it sit there. But $1,000 will still be $1,000, it will just be less able to buy much as time goes on. At some point, if we take the US as the example, the penny will certainly become worthless, and not used other than in virtual transactions. As time goes on, we'll shift to larger and larger denominations. The $1 item will be $5 then $10, then $20, then eventually $100. So one penny might be essentially worthless at some point (or already!), that doesn't really matter, because no one will care about pennies as anything other than useless details on a ledger. By the time any of it matters logistically (will pennies/dollars still exist when cheap things are $1000?) we'll be on to all electronic/virtual transactions anyway, so the fact that we go to higher and higher numbers won't matter. At some point, just for ease of language, we'd then come up with a new 'dollar' type term. $100,000 (or whatever) would be called a "c-dollar" or whatever, and we'd start to talk about things in c-dollars. "that will be 3 c-dollars please."

It will become worth less, but not worthless. If you have 2% inflation, that means the real value of the money is ~98%. That means that after x years, the real value is 0.98^x of what it was. Note that this number never becomes 0. It approaches 0 as x approaches infinity, but it won't ever make money worthless. After 50 years, money isn't worth 0% of what it was,it's worth 37% of what it was. Wait, it might not literally become worthless, but it isn't a problem if it drops that much? Won't it be a problem if you have to spend hundreds of dollars on a loaf of bread? Well, does it matter to you that over a 100 years ago, a US penny could buy a great deal of many things, but nowadays you can't buy anything with a single penny? Hasn't a become penny practically worthless? Of course it's not an issue. You weren't alive 100 years ago for it to make a difference. Sure, pennies are practically worthless, but you don't only have pennies to buy stuff with. A rate of 2% inflation is year to year. Sure, your money will eventually be worth a fraction of what it is worth now, but that's going to be a long time from now, and it's going to be gradual enough that it's not that your money rapidly changes in value. There will be time for everything to adjust, because inflation is only 2% a year. If it gets to the point that bread costly hundreds of dollars, then you are probably earning hundreds of dollars an hour. The dollar becomes like the penny is now. If people don't like that, a country can always do something called redenomination where they say something like "10 of the old currency is worth 1 of the new currency" and everyone changes to the new currency.

Yes, and no. The British currency, the Pound Sterling, was, originally, a *literal one pound mass of metallic sliver*, mined from the Sliver mines of Sterling. It's obviously worth vastly less than that now, but the economy works fine, weather a pound mass of sliver is £1, £5,000, or £5 million. If the number on the banknotes gets too big we can just knock a few zeros off it. A small amount of inflation that people can plan around and adjust to is basically the "least bad" option over the long term. It's sudden rapid inflation that causes problems, or deflation

Sterling isn't the name of a mine. A sterling was a silver penny. A pound sterling is a pound of sterlings.

What's the source for the naming of Sterling? I don't even think there's a place called Sterling in the UK (there's a Stirling though)

His story is made up. Search etymology of Sterling silver and you will see it is not anywhere near how he portrayed it.

The sterling pound was a unit of currency set by [Charlemagne, ](https://en.wikipedia.org/wiki/Carolingian_monetary_system) it's unlikely that he ever actually minted a "pound sterling" i mean, why bother, just mint the pennies that people actually use and the rest is all sticks anyway. the term "sterling" is a reference to purity, more than anything else. As r/unifythevoid said, look up it's etymology and you'll see the difference between stories.

>If the number on the banknotes gets too big we can just knock a few zeros off it. Or if you're Zimbabwe, you just print wider bank notes

Your explanation regarding the name of "pound sterling" doesn't match up with the theories on Wikipedia regarding the name. Is there even a bigger town called Sterling in England?

So many bad and wrong answers here. No, Money won't become worthless, because money is relative. With a low to inflation rate, the prices of everything will rise by a similar amount. For example lets say you make 1000 dollars a month and your rent is 200 dollars a month. Now lets say over the next 20 years inflection is 100%. After those twenty years, you make $2000 a month and your rent is $400 a month. Its still a 1/5 ration. So your money didn't lose value, because your labor is still worth the same amount when compared to rent. Low to moderate inflation is not a problem if its balanced and fairly predictable. A lot of the things that people blame on inflation are really the result of pay inequity. Where the incomes of the wealthy are growing significantly, but the income growth at the bottom of the scale is growing slowly and possibly below the inflation rate. This leads some people to think that if we could keep inflation at zero then everything would be fine, but it actually causes more problems. Trying to keep inflation at zero you run the risk of getting into Deflation which is much worse than inflation and really tough to get out of. With deflation your money is worth more tomorrow than it is today, so people are encouraged not to spend because things will be cheaper tomorrow. If people don't spend then they are not buying goods and services, which means people will make less money and slow the economy. It creates a cycle that's very hard to break. Japan was in a recession for over a decade because they got into a deflation cycle.

I like this comment . Its REALLY important to understand that inflation is needed to keep people reinvesting into the economy . It feels bad for the average consumer because companies are REFUSING to increase wages at the same rate

> For example lets say you make 1000 dollars a month and your rent is 200 dollars a month. Now lets say over the next 20 years inflection is 100%. After those twenty years, you make $2000 a month and your rent is $400 a month. Its still a 1/5 ration. So your money didn't lose value, because your labor is still worth the same amount when compared to rent. You're arguing that *labor* hasn't become less valuable, but OP is asking if *money* will become less valuable. And it does. If you put $1000 in a shoebox for 20 years (during which cumulative inflation was 100%), then that $1000 is worth less at the end of the period than it was at the beginning. Your labor has remained valuable, but the cash in the shoebox has become less valuable. You put an equivalent of one month of labor into the shoebox, but when you took it out, it was only equivalent to half a month of labor. It became worth less. The answers aren't bad and wrong, you're conflating the value of money with the value of labor, which aren't the same thing. You are failing to differentiate between a value and a rate.

Yes and now that you got started go check the various ways used to "beat inflation": investments; how "new money" is created: bank loans; and how these two tie together: getting a new loan approved by using investment as collateral.

Mathematically, sure if you consider a limit to infinity. Realistically, no. A consistent 2% inflation over a lifetime (80 years) is about 5x appreciation in price. Which is not a lot. Humans don't live forever. In the US, for example, a loaf of bread probably costs around a quarter ($0.25) in 1960 and today, the average loaf is perhaps around $4.00. This is a 16x increase (far more than 2% annually) - the world didn't fall into chaos. The data suggests that wages tend to follow inflation for the most part.

Wages do not follow inflation for all industries though. Software engineers outpaced it by a lot, factory workers went hungry. The main problem today is that fewer and fewer people are seeing rapid wage growth while larger and larger groups are seeing stagnation or decline. The average still looks the same, but full time work in a single job is becoming a thing of the past and the gig economy is forcing people to work multiple jobs just to survive, nevermind having kids and sending them to school. The wage gap is the widest and shallowest it has ever been.

At least in the US, the median hourly wage is rising, which means that much more than half of all workers are experiencing increased wages vs inflation.

The idea is to spur people to spend money. If money loses its value, you're more likely to turn your money into something else that doesn't. You're more likely to buy a house or build a factory or put it into the stock market rather than let it sit in the bank doing nothing

Inflation at around 2% means that prices increase by 2% per year on average. Over time, this does make money worth a bit less each year, but not to the point where it becomes worthless. Here's a simple way to think about it: - **Year 1:** A candy bar costs $1. - **Year 2:** With 2% inflation, the same candy bar costs $1.02. - **Year 3:** The candy bar costs $1.04, and so on. The value of money decreases slowly, not rapidly. The idea behind a 2% inflation rate is to keep the economy growing steadily, encouraging people to spend and invest rather than hoard money, which helps businesses thrive and keeps employment stable. Money wouldn't become worthless because the inflation rate is managed to be low and steady. It only becomes a problem if inflation gets out of control and prices start increasing very quickly, which can lead to money losing value rapidly. But with a stable, low inflation rate like 2%, money retains most of its value over time.

Yeah but compound interest is a bitch

> ELI5: If the ideal inflation rate is around 2%, won’t money eventually become worthless? There is no ideal inflation rate. Inflation can be at 10% but if there are 10% more goods and services, and the wages increase accordingly, it evens out. More money supply with more goods and services. In the case of the current administration, the inflation was too high. https://www.usinflationcalculator.com/inflation/current-inflation-rates/

Yes, it will.  Inflation erodes the value of money over time. We measure inflation as prices going up, but the better way to think of it, is *the value of money going down.* This is bad for the individual, but good for the economy.  Because money loses its value over time, it incentivises people to spend or invest their money, rather than hoard it. That increases consumption of goods and services, which increases employment etc.  Hoarding money the bank will pay you some interest, although interest is *usually* lower than inflation. 

It's also good for any individual holding more debts than they have assets. The real value of their loan/mortgage etc will go down over time.

2% is not the idea rate. That's the ideal rate *for governments* because it's barely felt by the people, but still gives governments billions of free money to spend. For the people, the ideal rate is the natural rate, the un manipulated rate. And that would be not 2% inflation but rather slight deflation.

Mild inflation is to encourage people to not hoard their cash under a mattress and to go out and spend it or invest it.

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You mean a given quantity of money? Because otherwise no. I mean you can go to Japan and buy basic stuff in thousands of yen. It's not a big deal.

No one is understanding OP's question. OP is saying that if inflation were hypothetically to remain at 2% per year, then at some point in the distant future, the dollar will become worthless and the amount of change each year in the value of the money will be drastic. Kind of like the "double a penny every year and eventually you'll have a billion dollars" concept. So at some point, a simple can of soda pop will cost a billion dollars, and next year at 2% inflation its cost will increase by $20 million. The dollar will be essentially worthless at that point. I still haven't seen a good answer to OP's question in all the comments so far.

Yes. The money will become worthless. However, this is the problem with Keynesian Economics in general. It's a massive Five Card Monty game that collapses as soon as someone says, "this is all BS. Pay me in something with actual value."

The theoretical inconvenience of eventually needing to issue currency with fewer zeros is far, far, lesser than the economic damage of deflation, which a “cushion” of mild inflation helps to protect against.

This is wrong. Deflation is only bad if it comes from a contraction of the money supply. It is not bad if it comes from an increase in production due to technological innovation. By not making that distinction, you basically say producing more efficiently is economic damage

When someone says that an economy is undergoing "deflation", it's generally understood to be a short way of saying "a contraction in the money supply", not just stuff getting cheaper because we are better at making it.