those with the most assets (your "1%") can best manage their investing to avoid losing value, while the people with modest amounts of savings get screwed either directly by inflation or through encouraged patronizing of the fraudulent consumer-financial industry
Is there some reason why those with modest savings can't buy treasury bills? TIPS will match inflation and other treasury notes will often perform better. And you can buy them directly from the US government bypassing the "fraudulent consumer-financial industry" altogether.
Treasuries are not liquid assets for the average consumer -- they are held to maturity. This means that those with "modest" savings can't afford to own them, because of the liquidity risk.
If "other treasury notes will perform better", then by definition, TIPS isn't keeping up with actual inflation. Keeping up with the treasury's definition of inflation doesn't mean your savings isn't losing value.
Can you explain that a little further? I don't see why the federal government can't put out a bond that beats inflation as well as one that matches inflation. After all, inflation is sometimes incredibly low - we had deflation in 2008-09 after all.
Inflation isn't a measure of how much debt the US federal government takes on or how much money is in circulation after all, but rather the price increases of various commodities and services.
The Keynesian view is that inflation has little to do with monetary supply. The Austrian view is it does, though there are enough real-world examples of inflation without monetary supply increases and deflation with monetary supply increases to safely say that the effect is indirect at best. At the very least, it certainly isn't a 1:1 correlation.
I think a part of the point is that there is no such thing as the measure of inflation. Every measure of inflation measures some basket of goods; what if I want to buy something else with my inflating currency? Then this measure isn't relevant for me. Also, how can we know whether prices rise due to an increase in the money supply or due to something else? Consider the following example where p, q, r, s, t, u and v all denote a certain good. m denotes the monetary good. At first, the relationship, in price, between these goods is the following:
What role has an inflation in the monetary supply played in the change in prices and what role has factors such as scarcity, difficulty of production, labor costs, etc. played in the change of prices? The answer is it's impossible to tell. Sure, you could calculate an average price change between all the goods, but who is to say that this average stems from monetary inflation and not an increase in wages or an incrase in energy costs, for example?
USG cannot conjure value out of thin air, so any "free" returns must come from changing the unit of measure. The no-risk USD instrument with the highest rate of return is where conservative money should generally end up, and thus its return is the expected monetary base expansion. And since this expansion is distributed evenly across the economy, by definition it's inflation.
When analyzing inflation in terms of prices, one must also take into account how much those prices would have otherwise dropped due to non-monetary factors such as technological and market progress. If a certain widget is 10% easier to produce than yesterday but the price remains the same due to monetary base expansion, that's a silent 10% reduction of what today's purchasing power should have been. With exponential technological progress, this term is ever-more important.
> Is there some reason why those with modest savings can't buy treasury bills?
From a purely moral standpoint I think it's wrong for a government to force an inflating currency onto the public, in order to incentivize the public into buying the government's own debt. I mean, this just seems obviously criminal to me if anyone but the government were caught doing this.
Locking people into a cell is also obviously criminal if anyone but the government does it.
There are certain powers that are useful for someone to be able to exert at specific, well-defined and controlled times. This is why the government has a monopoly on physical force, and for the same reason it has a monopoly on economic force.
Note also that the government doesn't actually force you to use their currency as a store of wealth. You're really only forced to use it to pay your taxes.
> There are certain powers that are useful for someone to be able to exert at specific, well-defined and controlled times.
I agree with that. But I don't think financially encouraging anyone to use a government-made currency is one of those powers that the government should be entitled to.
> Note also that the government doesn't actually force you to use their currency as a store of wealth. You're really only forced to use it to pay your taxes.
The capital gains tax is an effective way of discouraging anyone from storing their wealth in another asset. Say I had bought gold in 1981 because I (rightly) expected inflation to increase, then in 1986, when the currency had lost half of its purchasing power - and the gold I owned had consequently doubled in dollar-value - I would be legally required to give some of that money back to the government, making the protection of my savings' purchasing power very difficult (if I want to stay on the right side of the law).
So while the government doesn't directly force anyone to use their currency to store wealth, they make it less attractive to not do so. And I suspect these efforts would increase should we experience a flee from the dollar in the future.
Legal tender laws is another type of legislation that gives unfair advantage to the government's own currency. So forcing citizens to pay their taxes in the government's currency isn't all the government does wrt. hindering currency competition.
Is there some reason why those with modest savings can't buy treasury bills? TIPS will match inflation and other treasury notes will often perform better. And you can buy them directly from the US government bypassing the "fraudulent consumer-financial industry" altogether.