In this article, “The Wealth Redistribution Scam that is “Inflation”, Dr. Thorsten Polleit lays out a compelling case on how Inflation usurps wealth from one group of individuals, as the second group benefits from the debasement of the money supply.
“As money loses its purchasing power, income and wealth are stealthily redistributed. Some individuals and groups of people are enriched at the expense of others. Savers and workers are swindled out of their deserved income and retirement benefits, while those who own goods that rise in value or who borrow money typically reap a windfall profit. Clearly, the banking industry is a major beneficiary of monetary debasement.”
Here is a way to translate this: If you are saving your way to retirement, it’s a highly risky project employing the commonly used strategies to save for retirement. As the units of fiat currency are devalued, with loose monetary policy, it requires more units of currency to purchase goods and services—the prices of those goods seem higher, thanks to the devaluation of the monetary base. In the article, Dr. Polleit breaks down the illusion that the stock market can “beat inflation”. This is false, as rising stock prices are an indicator of inflation, and the true prices of stock are not as high as it seems.
On top of all of this, many Americans are saving for retirement using qualified plan vehicles, such as 401(k) plans. The investments used inside of these plans used to “save” for retirement are typically as follows: Mutual funds, stocks, and the like. The appeal of these vehicles are obvious: All contributions, for the current tax year into the 401(k) type plan, are tax deductible or done Pre tax from payroll deduction. Upon retirement, after 59 1/2, the owner of this plan begins to withdraw the funds, and will be taxed earned income tax on ALL funds. Yes, the original principle AND the gains are taxed. In short, the upward pressure on stock prices, thanks to inflation, benefit the IRS since the funds will be taxed at retirement.
The financial institutions also benefit from the inflation, as equity prices are pushed upwards; this yields higher commissions, higher valuations for assets under management, and higher profits. Consider this: With these investments, all the risk is transferred to the investor, who has little or no control on the investments inside his qualified retirement account, but has the tax burden.
Good luck living off that money during retirement..
Read the rest of the article here: https://mises.org/wire/wealth-redistribution-scam-inflation