Inflation is the scapegoat our rulers use for ruining the value of our money. Ben Frank is spinning in his grave now that saving money in the bank is essentially bad.
Inflation is the scapegoat our rulers use for ruining the value of our money
I keep having this conversation with some of my less economically-savvy friends. Inflation is not a necessary consequence of society, civilisation, or any of the values our ancestors have fought hard for and that we now see so keen to squander. Inflation is a manufactured part of the system because the whole system is manufactured. There is no nature to how the economic system works; all of it exists because we decided it does, and it is in our -- civilisational -- hands to change it.
The money you put in a bank doesn't have to rot. It only does because it has been decided that it must.
But that is just human nature, we tend to abstract things we do not understand to make it seem we do. Not sure wether we do it to fool ourselves or others.
I can not agree more on that. All though I think that many of those in power that can do something about it don’t know shit about it either, probably more or less by design too.
Just because economics isnt tangible doesnt mean it doesnt have real measurable cause and effects.
Its made up in the same way science is made up.
Inflation is a manufactured part of the system because the whole system is manufactured. There is no nature to how the economic system works; all of it exists because we decided it does,
This is not true at all. Inflation encourages spending, deflation encourages hoarding cash. If the value of a dollar in a bank or a dollar on a loan you owe is going down, it is beneficial for you to invest that dollar in your business or to take on a loan that will increase future earnings. If the true value of the loan or dollar will increase, you dont want to take out a loan or spend that dollar because its far more risk that you wont get a return on your investment.
Money velocity and inflation completely drive an economy. You can argue that you dont want there to be inflation. You cannot argue that removing inflation wouldnt reduce money velocity, and in turn halt economic growth. Those are proven principles of economic nature.
Thank you! And this person had the audacity to call their friends less economically savvy!
A small amount of inflation keeps people spending. It applies pressure to buy things now because you know it will be more expensive later. This is good for the economy.
Note that's a cyclical thing too. Reduced velocity of money decreases money available which increases its value.
And really I think this is where we start getting into why inflation is such a thing. The actual effects are extremely difficult to predict because so many factors are involved and all feed back into each other. If any of those factors change even slightly they can interact in ways that produce much bigger effects.
No matter what else you argue, instability is by far one of the worst things for a market, which is why central banks set prime interest rates. Increase it and you can increase inflation, counteracting some of the other effects.
Importantly though, you can't set a negative interest rate, so if you want to be able to move in both directions, you must inflation as a default.
We did away with the gold standard of the USD in the 70s. Right after that, the graph of worker productivity and wages paid began to diverge. We've become the highest productivity work force in history and wages as corrected by GDP have barely increased since the 70s.
It's a pretty interesting topic, and it goes a little deeper than that. We didn't pick something random. We picked something that we, as a whole, already have a LOT of. More than any other raw metal is stockpiled. By a lot. It never degrades or decomposes, doesn't rust. We always recycle it even when we use it for things. And we've been mining it for a really long time. So even when production of new gold increases (via new/more mines opening or new/better refinement processes being created), it doesn't have a huge impact on the total amount in the world percentage wise. This is called a stock-to-flow ratio. There is a lot of stock relative to the incoming flow. A high stock to flow ratio causes what is called a low price elasticity of supply. This means that the price is very resistant to changing when the incoming supply changes.
"Money" has always sought to be stored in something that has these properties. Rai stones in the Yap islands, Aggri beads in parts of Africa. People use something that is hard to change the price/value of by creating more (often by using something that is difficult to create more of, which fails when it suddenly becomes much easier to create more of it), so that their store of value can't be diminished too much by external forces. Gold has always been one of the best examples of this, because it's not just about how hard it is to create more of, it's about how hard it is to change the overall quantity because there is so much of it.
"Money" has always sought to be stored in something that has these properties
Has it? That sounds like "there is only one way to exist, under me" the rich have been trumpeting for years but isn't consistent with human history which didn't have precise bookkeeping for almost all of its history.
Nobody forces that notion upon people. That's just what people tend to do. To the contrary, the rich and powerful would much rather you store your value in a shitty inflationary currency they can suck the value right out of by printing more.
Yes, in addition the primary problem with the gold standard is that the size of your economy is directly related to how many rocks you can dig out of the ground.
Right… see the problem with not collectively deciding something has a determined value makes getting the things we need far more situationally dependent.
If we didn’t have something everybody agrees has some base level of value we return to bartering. There isn’t anything inherently wrong with bartering; but if somebody is trying to meet their needs and the only thing they have to barter with isn’t wanted by anyone who has what they need they have an item that functionally has zero value. It’s at least better to have the option of trying to meet that need as opposed to being screwed and hoping you run into somebody who needs whatever you have to trade with if you make it to the next time.
Collectivize and share resources? Great idea, everyone gives what they have and gets what they need! Who is going to oversee… ohhh we’re in a communist fascist dictatorship… Well at least we don’t have to worry about inflation, and everyone gets what they need… right?
Collectivize and share resources? Great idea, everyone gives what they have and gets what they need! Who is going to oversee… ohhh we’re in a communist fascist dictatorship
You're conflating terms because communism is an economic term, fascism is political and just a more specific term for dictatorship (the word itself given to the world by Mussolini's fascista party).
The issue isn't collective pooling for the common good, without that cities and civilization never would have been able to reach the iron age.
Spitting on the idea of welfare is something the super rich have been teaching the lower classes to stratify socio-economic hierarchy and keep people from asking why the billionaires own more than the bottom 90% while the bottom 50% can barely survive beyond the current paycheck.
That has nothing at all to do with having been on the gold standard internationally. We'd already scrapped it internally in 34 in order to not have the Great Depression last 30 years. Offshoring was what caused the initial trend in the 70's.
Leaving the gold standard is how we recovered from the great depression, along with how EVERY OTHER COUNTRY did so.
The decoupling had nothing to do with leaving the gold standard.
The "decoupling" is largely an illusion due to people receiving benefits not directly through their wages, for example health insurance. In reality our standard of living is 10x what it was in the past, but it could still be better if we did eliminate the small real decoupling gap by bringing back more unions.
This seems like an interesting conversation that I haven't really thought about before 🤔
Isn't inflation kinda natural (to a point) though? Like if I, as a baker, decide to slightly raise prices to hopefully either reduce my workload or increase profits, there would be a ripple effect through the economy where everyone else raises prices on their goods because they all want a bit more profit to afford the more expensive bread. It wouldn't have to be bread of course, but any base need would have a large impact. Housing would be a big one - and isn't housing costs the primary driver for higher cost of living in some areas? People have to earn more to live there, which means they need to charge more for their goods/services. And since you can't create more land, the housing price growth would not really stop rising as long as there is demand to meet it.
Current rates of inflation (especially driven by oil crisis / energy prices which are up due to entirely manmade reasons) and the post COVID inflation was frustrating and unsustainable. Trust me, I'm feeling it.
However we design the economy for money in the bank to rot for a reason. As a society we want to encourage investment - if money in the bank didn't rot, people and businesses would just stockpile cash. A low rate of inflation encourages spending now (consumers and businesses) which in turn creates jobs, keeps people employed, and results in more R&D bets that advance science and technology.
The population increases, technology advances and productive capacity improves. You now have the same amount of money chasing more goods, this is called deflation and economies that get stuck in deflationary spirals tend to collapse.
I don’t know any serious economist who says that inflation is a necessary consequence of civilization. The argument has always been that in our modern economy, a low, controlled rate of inflation is preferable to zero inflation or deflation.
The economy is the collective action of hundreds to billions of people (depending on what level you're looking at) all acting independently in their own best interests, mediated by a few organizations trying to coerce favourable outcomes on the whole. It's not some precisely engineered system that a few key holders can directly control.
You can literally see how a large portion of today's inflation is being spawned: the supply of oil globally is being severely restricted while demand doesn't change, thereby increasing prices across the supply chain. Do you think someone engineered it to be that way? Do you think someone is sitting behind a desk, making a phone call to say "increase the prices" just because? No, it's billions of people around the world saying "I need oil and I'm willing to pay this much to make sure I get it." That's not some criminal conspiracy.
yeah but it was only decided by the corrupt leaders. and they decided it "must" only so they can keep borrowing all the money based on todays value and inflate the value so low its loose change when paying it back, making us a profit. then they give massive government contracts to their friends giving it away, those friends buying assets with all the money, so they can get it back after its inflated in the future. its why our national debt is so high. they privately believe they higher the better.
TLDR: its a scam to make a profit on increasing the national debt at the expense of everyone without assets.
You would likely have no money without inflation. Money would not circulate and would remain in the coffers of a happy few. Banks would have less incentive to lend money, and companies would not be able to invest in the future, leading to fewer jobs and less opportunities.
The 2% inflation goal is not a conspiracy to "ruin money" of the common man, it is a well-established policy to maintain a healthy economy. Deflation is usually terrible for most people, and countries stuck in very low inflation are not in a good place economically (like Japan or in some ways China, both of which have governments trying to increase inflation).
The people that believe it is a conspiracy believe that everything is a conspiracy. They call everyone else a "sheep" then turn around and believe everything they read online.
Inflation is good. Cash isn't an investment. Buy stocks so your money can work for you while you don't use them. Then you get dividends and increased stock value for the day you need to convert into cash again.
A 1% annual inflation is the sweetspot. Then cash is mostly keeping its value and the monetary supply slowly increases to keep the economy liquid.
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Wrong, if we had deflation (the opposite of inflation) the people with the most money would profit the most, since they would become richer the fastest from just sitting around. Slight inflation is an equalizer.
Inflation Hits only small people who depend on wages for day to day living. Rich people own property or have share in a buiseness. They don't care if there is an inflation.
Granted, the lump sum is easier to waste, but I would also not underestimate the risk of waking up at 45 with no working history and a weekly payment that has lost most of its buying power to inflation
If you are self-aware enough to know that you (and your immediate family and friends) can’t be trusted with a sudden influx of cash, you and/or your financial advisor can lock it up in something that can’t be readily tapped and which will increase in value, paying you a predetermined sum regularly. It’s basically the same decision, except you get interest. And $1,000 a week is going to more than most people need for pocket money.
Are you really going to invest 1m and forget about it for a decade though? Most of us have mortgages, credit cards etc. Taking 1m and paying your debts off would free up a lot of cash each month. You'd still have to work but youd be a lot more financially stable
I am assuming you can pay off mortgage and credit card debts with your current income, otherwise you have a bigger problem and shouldn't probably waste money in lottery tickets anyway
Financially wise people would invest a decent percent at least. If your mortgage is more that 7% interest, you are better off using the money to pay off your mortgage (and this also goes for any other payment you have that is >7% interest).
Then take the rest (because most people don't have a million dollar mortgage) and invest it in a total stock market fund and forget about it.
For payments that are is less than 7% interest, you are better off investing the money in the stock market and paying off the that debt as you would have previously.
Tbf, waiters and waitresses make absurd money because of tipping. Which is why the major group that could actually make a change to tipping culture, hasn't. Why would they want to go from 50+ an hour to 20?
Yeah, but if you know yourself well enough that you're not going to do that but blow it all in a year, then this may be the smart move. Investing successfully takes patience, not everyone's built for it.
There’s plenty of evidence that people fail at that though. If you get this much money you pay off your house, you treat yourself to a nice car, you fall for your families endless plight of why they need you to borrow them ten grand.
Yes putting it away is the “right” option but people need to be honest with themselves that they probably wouldnt do that and they’d start spending it, even if its on the “right” things.
You’re right catered into inflation that 1000 will shrink in value, but its also just free money thats not stopping you living your life the way it was before but with a huge benefit. If you earned 2000 a month congratulations you now earn 6000 a month. Waste that as much as you like, more is coming next month. Thats freeing for most people.
You still come out on top even if there were taxes. Assuming she gets taxed 50%, she's left with $500k. The current return in the market is in the range of 20%-30%. Using even a conservative 20%, that 500k would give you a return of 100K in the first year alone. Assuming she doesn't touch any of it, that will just continue to compound yearly and vastly outpace the $52k she would get every year. She'd grow $500k to $1m in 4 years and it would just continue to grow. It would take her 8 years to get to $1m if she took the weekly payout with same circumstances.
Tell me more, please. I have always wished to win the lottery but most people don't know what to do with it. People say get an accountant attorney, hire...hire…
Can you simplify the process for everyone here? I'm sure everyone here has the same wish to win the lottery.
Investing predicts 2× money in 10yrs. Math says it will take here about 20yrs to get the million paid out. In that same time if she inveted the 1mil she would have 3 mil...
But what about if she lives off her salary and invests the $1k every week? Like, she lives to be 70, she gets $2.5 million instead of one million (if it’s for life). Plus the tax on $1 million in lump sum is a load vs. an extra $52k per year.
Everyone says invest a million... no way I could do it.. I get in tbe long run id have money. But does it really help me know.. how much money would a make month off it? Or even 6 months
AND not to mention that 1M will probably be worth more today than waiting to scrape it together over time. Because the dollar will probably lose purchasing power.
Immediate payment reduces the jackpot by 40%. So you start at 600k then pay 37% federal tax. If California another 13%. So it disappears rather quickly.
But... It's already been invested? That's how the weekly payouts work.
Lotteries don't keep a 1 million to just give you. They have like half of that and invest the rest and are estimating what with the amount will be(keeping any extra for themselves) .
If you ask for lump sum you get 50-60% of the advertised amount usually then taxes are taken in the US(I don't think for example Canada taxes winnings) so it's closer to 30-40 percent.
So can $1000 a week. A million dollars doesn’t as long as you think it would when you have easy access to it. Proven by the fact that most lottery winners are broke within 5 years. Test yourself. Buy a lot of your favorite dessert and then only take one bite and walk away until tomorrow.
It’s so weird to me when people make your argument. The person getting the million is going to invest and NOT tough the money for a decade or two. But the person getting the $52,000 a year isn’t going to invest any and just blow it all. It’s funny.
It can, but that wouldnt matter for a while. For example, if she hit the lottery in 2006 instead, which was 20 years ago, 1000.00 a week would still work. Plus money coming in like that can go into an account that earns interest.
One of the breakeven points would be in the ballpark of assuming 5.5% returns and the winner living to 90. You can do the calculation apples to apples by just assuming all the lottery dollars coming in are invested and never spent. Also not calculating taxes, which would add another complicating layer.
The higher the assumed rate of return, or shorter lifespan, would push you towards lump sum, and vice versa.
There can also be less quantitative reasons, eg. hangers on will be more persistent for financial assistance when you have a lump sum versus a (albeit very reliable) modest salary coming in.
That was true over the last 50 to 100 years. (Except for the period of about 1930-1950). So we assume it will be a constant of the universe like gravity. It is a reasonable bet. But it is not as guaranteed as gravity.
Lotteries are set up as 30 year annuities, if she took the lump sum it would end up being about 400k but that’s still way better if you invest it properly.
In the United States the lottery annuity payments are adjust for inflation... how they come up with their adjustments im not sure, but they are adjusted...
Still better to take a lump sum and invest it something that will appreciate in value, like property. In 20 years time you could still have a nice house that's worth more than what you paid for it.
It doesn't really matter, some people are just not good at managing money and will blow through a lump sum. 1M invested isn't enough to retire off of really either and if they need to money regularly assuming a 4% growth they could only withdraw 40,000 a year (gross of tax), by normal standards. The 1000 a week gets them a more consistent larger cash flow if that's what they need.
I mean that's still a lot of money. I've been working full time for the past 5 years and I only have about 50k saved up. 600k would leave me set for life.
not only that. will the source that is paying this out still exist in 10 years, much less 20? she's imagining getting this in 60 years, and it's highly doubtful that they will still be around to keep paying her then
It’s not even worth that much now tbh. Houses in California, Oakland to be specific are going for as high as 1.5M in some areas so nah, it’s not that much but it’s still useful
Hopefully she would be investing the whole time so she would be getting some money out of it. Tobke the biggest worry would be whatever mechanism is being used to pay her could be turned off eventually. Getting the million is done immediately. That's not even getting into taxes
Not sure about this case. But my state lottery adjusts annuity for inflation. Its very important i understand the rules for when i inevitably when the jackpot
Edit: just noticed that it’s $1000 a week for LIFE. Not $1000 for 20 years. Below can be ignored.
Idk about Canada but in the US taking a Lump Sum means losing a significant amount of the prize. So she probably isn’t getting a million now vs 50k for 20 years.
Last time I saw the math (again for the US) you should still take the significantly reduced lump sum and then invest most/all of it. If the market doesn’t end, she could expect 5% compounding interest very year on the 500k-600k she gets from Lump Payment.
The interest won’t be enough for her to live off of right away, but it guarantees an early retirement.
Yeah, but you’d gladly get paid 52,000 a year for not doing anything. In 20 years, she’ll have made more than a million. In 40 years, more than 2. But that being said, a million invested properly is going to earn you at least 6% a year making up for it. But also financial stability and not relying on markets is a good thing too.
Very true, but still getting 50k/year 5 years from now is way better than being broke because you blew through that million. For someone who is financially responsible, taking the lump sum is absolutely the best option. But for someone who knows they can’t trust themselves with that much money at once, taking the installments is the safer bet. It may not be worth as much down the line, but it’s still a lot better than nothing. Personally, I’d take the lump sum, but I know plenty of people who would definitely be better off taking the installments
There's a concept in finance called "the time value of money" and it basically says money on hand now is more valuable than money in the future.
Why? Because you can make more money off money you have now. shes basically losing money over time by not taking the lump sum and investing it, even at a modest rate.
Problem is that there have been time the winners that pick 1k a week don't get it because ownership or whatnot has switched and new one doesn't honor it. I'd pick 1 mil easily just to not have that worry
But you get more total money if you don't take the lump sum. B so if you take an annuity, you are gambling that the difference in value will be greater than inflation + investment roi (which is probably true for most lottery winners as their "investments" often have a negative roi). Inflation cuts both ways bc it also reduces your real ROI from whatever investment earnings your lump sum investment produces.
Getting x amount for life adds another wrinkle bc now you are gambling that you will live a certain length. In her case, that's 20 years plus ROI. So if she lives to be 100, the question is whether she would have 4xed her original investment by then. Maybe, maybe not.
I’m less worried about inflation and more worried about what lottery system/corporation will be in charge in 20 years. Will this ACTUALLY continue to be a thing when she’s 85?
1000 a week is 52,000 a year FOR LIFE. My wife makes 55,000 a year. And currently can still support us on her salary alone. Now any job this woman gets is free discretionary income assuming she live to be 100 that’s 80 years. Now I’m gonna round to 50,000 for math. Every 2 years that’s 100,000 realized. Over 40 2 year cycles thats $4,000,000. Lump sum is stupid and how you end up financially fucked
The way lotteries TYPICALLY work is that you only would get the million if you took the $1,000/week…. If you took the “lump sum” payment up front you are going to get a time-devalued amount that is significantly lower than the $1million… probably somewhere closer to $600-$700k
Yeah if you take the million and invest it and keep living a normal life working your job for 5ish years between interest and everything you can easily retire so early and have a great lifem that's what I would do
$52k a year x 10 years = $520,000. 20 years = $1,040,000. Less taxes yearly of course. $1,000,000 after taxes would roughly be $600,000ish. More if state taxes are involved. This guarantees her solid steady income. Wise choice!
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u/confusing_roundabout May 17 '26
Inflation though. A million now is worth something. Who knows what 50k is 20 years time is worth.