There would be nothing wrong if money wasnt created out of thin air to cover the GDP increase. It's basically the central bank stealing from people and claimimg that low inflation somehow helps.
It doesnt.
Its's a hidden tax on everyone, that eats GDP growth.
> We (mostly) don't create money out of thin air. We borrow it
This is the same thing - when you go to the bank to get a loan, the money is created out of thin air. It simply appears in a database. It is not the money someone has deposited in the bank. The only reason the bank has to keep reserves is for stability in case of bad loans.
It is strictly not. All money is borrowed. This seems like free/unlimited printing when the interest rate is 0%. But when the interest rate rises, this has real consequences and you can't print your way out of a 5.5% interest rate.
This is why US politics got heated about finance as of late. If inflation doesn't come down, the US will have to "print" that money. Essentially rendering the Fed to the likes of Pakistan, Turkey and Argentina.
Problem with inflation in every country is not that it needs to be above 0. It's actually much higher than they publicly say. With not giving you real numbers, they lie officially to get richer. Intentional
Why would small inflation be good for anyone bar the centtal bank? Small inflation is ignored by everyone.
If there was no artificial inflation (central bank racket) you could ignore it as well.
Inflation encourages investment because if you just sit on your money it gets eaten away by inflation. Once you’re Oprah-rich inflation is the rate at which you’re losing net worth. This is my non-economist understanding.
Inflation affects the value of currency, not assets. Oprah isn’t sitting on billions in cash, presumably. Those billions are invested in assets, which typically inflate at a rate similar to inflation. This is why one of the best hedges against inflation is owning things like real estate and equities. The value is separate from any currency you can denominate it in.
The benefit of mild inflation, to phrase what you wrote a little differently, is that it encourages people to create assets with substantial intrinsic value as a way to dispose of currency. Everyone wants to own as little currency as possible. There are many positive externalities to asset creation.
> Inflation encourages investment because if you just sit on your money it gets eaten away by inflation.
People shouldn't be penalised for saving money.
"Oh, but just invest it!"
With investment comes risk. Why shouldn't people be allowed to save without risk or having their savings melted by lost purchasing power through inflation?
Inflation is a hidden tax and theft of those furthest from the newly "minted" money to benefit those that are closest to the source i.e. banks and large borrowers.
I do wonder if this conventional wisdom is actually true, though. Somewhat relatedly, there was once an idea that if you lower taxes for rich people, they'll invest more, and those tax savings will trickle down to the middle and lower classes and be a boon for them. But we know it doesn't actually work like that.
