Those that are in charge of the Federal Reserve, constantly talk up the benefits of a little bit of inflation, but they don’t seem to want to readily admit that inflation, whether it be a little or a whole lot more than little, is ultimately a very bad brew for those that are classified as “widows and orphans,” of which these people are typically risk averse, with a strong desire to hold onto their capital, first and foremost, in which inflation inexorably serves to erode such. So then, those of the Rip Van Winkle ilk, who prefer to bury their treasure or to put such under their mattress, or invest in conservative treasury bonds, are clearly going to lose in any economic environment in which inflation has turned decidedly in an upward trajectory. That is to say, in an era of inflation, clearly a dollar of the present day, is not going to have the same value, one year later, but in fact, that money will, because of inflation, have become devalued.
There are a lot of advantages to stability in any business and most importantly when it comes to the coin of the realm. Those that know that a dollar today, will have the exact same value years later, will find therefore that the planning that they need to make for their business enterprise, for bills, for investment, and for savings, is going to be a lot more straightforward with the foreknowledge that the dollar is stable and therefore not subject to either deflation or inflation. On the other hand, when the dollar is suffering from being devalued through inflation, there are going to be particular people and businesses that are going to be hurt by such, and of course, there are going to be some others that will make out quite handsomely.
The type of people and businesses that do poorly because of inflation are manifold. For instance, all those that are risk adverse, and therefore savers of capital as compared to investors of that same capital, as well as all those that have income, of which, that income is not tied to inflation, are in most cases going to do rather poorly vis-à-vis inflation, for what they so have is being systematically eroded in its real value by inflation. On the other hand, those that are in debt, of which the interest rate for that debt has been fixed at a reasonably low rate, will typically find inflation to be their friend, for they are now paying back their debt with dollars that are materially cheaper than the dollars that they originally borrowed, in the first place.
Another significant problem with inflation, is that people and businesses, because of inflation, and because of their desire to make up the ground that they are losing to inflation, are often going to have to take a higher degree of risk to try to recover or to come out ahead of the inflation rate that they are facing. That doesn’t make for a more stable construct, but rather adds to the instability of the monetary system, endangering far more people and businesses, simply because the monetary unit is not stable. Further to the point, inflation is always a reflection that not all is well with the coin of the realm, and those nations that are unable to stabilize their currency run the real risk of not only devaluation in comparison to other nations’ currency, but also the incumbent problems and drama of national insolvency.