Introducing the ‘Inflation Profiteers’

Introducing the ‘Inflation Profiteers’

A recent Forbes article argues that inflation is hard to stop because, although “every politician and government functionary professes to abhor” it, “inflation has many winners.”

The article lists the following “inflation profiteers:”

The IRS: “While tax brackets are mercifully indexed for the cost of living, other parts of the code are not.” In other words, taxes that used to target the rich are “about to hit the middle class.” Further, capital gains are calculated without adjusting share purchase price for the cost of living—so investors could be effectively “breaking even on an asset in real terms but still owe a fat tax on your ‘profit’.” The article argues that Congress is not willing to repair these inflation errors because it needs the tax revenue.

Mortgage debtors: The tug-of-war between borrowers and lenders isn’t new. In the case of inflation, the article notes, “everyone with a fixed-rate mortgage gets a windfall from an upward surprise in the inflation rate.”

The U.S. Treasury: The article cites the example of the 1970s, when savers who bought Treasury securities got “hosed” when the government repaid its debt with cheap dollars (in a period of high inflation). “The temptation for a repeat performance will be great,” it says, noting that the government currently has $14 trillion of longer-term debt outstanding with an average maturity of 7 years—which means that each percentage-point increase in inflation delivers a $1 trillion windfall to the government and a loss to those who own U.S. paper.

Developers: Inflation creates a feverish demand for real estate and “effectively lightens the burden of any fixed-rate debt they owe.”

Managers: Inflation makes it easy to implement pay cuts— “All a timid personnel department has to do it not hand out a raise.”

Coal miners: Bitcoin holders benefit from inflation, as it renders bitcoin a safe haven versus dollars, and the electricity used to make new bitcoin comes from coal. “To sum up,” the article says, “inflation means bitcoin appreciation, which means bitcoin mining, which means coal burning. So, inflation will help the coal miners.”