The last time this happened, voters didn’t credit Bill Clinton. That may be a bad omen, or a good one.
If the stock market chose presidents, Joe Biden would be a shoo-in for reelection in 2024. The market rallied this month amid growing optimism about the economy, with the S&P 500 zooming 1.9 percent Tuesday on news that the consumer price index rose only 3.2 percent in October (compared to 3.7 percent in September). Stocks rallied again Wednesday on news that the producer price index fell 0.5 percent. Commentators are no longer debating whether the economy will experience a “soft landing” (i.e., a reduction in inflation without recession). The only question now is when it will arrive. The S&P 500 seems to have decided it’s already here.
But the stock market doesn’t choose presidents. Voters do, and polls continue to show they think the economy is in terrible shape. A Financial Times–Michigan Ross Nationwide Survey conducted November 2–7 is absolutely brutal on this point.
Inflation is better for people in debt since it makes it easier to pay back; a lot of farmers in the late 19th and early 20th century pushed for inflationary policies in part to make it easier to pay off bank loans.
Deflation is bad for two reasons. First, as mentioned, is that it doesn’t encourage people to spend sooner in the market. Second is that it encourages investors to pull out their money from the market, since they may get better returns stuffing it in their mattress.
That only works for loans already taken out. A fresh loan will adjust to whatever the inflation/deflation rate is. Juicing the economy by helping out people who took out more money than what allows for a margin of error means we’re just encouraging risky behavior. The reason for taking out a loan is that you expect that the money now will give better returns that just letting it sit. Let’s say the deflation rate is 2% and you take out a loan at 1% interest. If you can’t put that money to use better than growing at 3%, then it sounds like your business isn’t viable anyway. It’d be like taking out a 5% loan at 2% inflation rate and failing to beat that.
If I buy stocks, I’m not technically investing in a company unless it was an initial sale of stock by the company and that usually isn’t the case. Instead it’s just speculation. So how is that different from letting it sit under a mattress economy-wise? Also, if you buy a stock and it goes nowhere, you’ve actually gained by whatever the deflation rate is, but under inflation, you’ve lost by however much the inflation rate is. Seems like inflation would only encourage people to pursue more aggressive (i.e. risky) returns.
Let’s say the deflation rate is 2% and you take out a loan at 1% interest
No one is going to lend you money at an interest rate lower than the deflation rate, ever.
If I buy stocks, I’m not technically investing in a company unless it was an initial sale of stock by the company and that usually isn’t the case. Instead it’s just speculation.
Every stock purchase is an investment in a company, always. That’s literally what you’re buying
So how is that different from letting it sit under a mattress economy-wise?
The money then gets spent, which does not happen under your mattress.
You’ve got some very foundational aspects of this entire process quite wrong.
Why wouldn’t they lend you money at 1% when the deflation rate is 2%? Their money is worth 2% more plus they get 1% more from you.
Not every every stock purchase is an investment in a company, because you’re buying off someone who is not the company. The company doesn’t make that money. It’s kind of like used sales vs new sales. Again, only when the company issues new shares or does an IPO do they make money off stock sale.
If I buy a stock and sit on it, that’s essentially money sitting there. Whether it’s cash or a digital record claiming I own X number of shares in a company, it’s not doing much.
If I’ve gotten foundational aspects of this process wrong, you’ve yet to demonstrate how.
