1. Fixed rates and adjustments
Some who hold fixed rate assets are not stupid, but rather they have no choice. Fixed income recipients who don’t have their income adjusted properly can get hurt.
For example, those who receive Social Security based on CPI of course tend to be older, so most of their costs may be focused on rising healthcare costs. However, healthcare costs are only about ~9% of CPI, so effectively their fixed income doesn’t adjust upwards commensurately.
2. Example for demonstration purposes
4% was just an example. The Fed target is 2%.
I could also consider the 12% long-term return from equities, split somewhere between price, reinvestment, and explicit dividends, but that would obscure or unnecessarily complicate points.
3. Modest and predictable
I am not disputing those numbered points you brought up concerning predictable and modest inflation assuming they exist, but we don’t have a guarantee of predictable and modest, but best efforts.
4. Asset price inflation
Whether it’s an inflation of the price of assets or deflation in the cost of capital, wouldn’t that also imply that the unit of asset can be interchanged with more of a unit of account (aka: dollar)? And if so, how is that different? Whether it’s different or not, then wouldn’t that also lead to a dangerous and unsustainable asset prices and imminent correction for the broader macroeconomy?
5. Government responsiveness
New policies would require a coordinated response between the legislature and executive. These days, it seems impossible or hard for them to do anything — witness the gov’t shutdown, delay in passing a relatively measly $5 billion in funding for the temporary southern border encampments, or to pass more comprehensive immigration reform. And these are just a tiny fraction of all the issues.
These days, about half the nation expects the executive branch “not” to enforce the laws, which obviously aren’t its duties in the first place, while completely ignoring the fact that it’s really the duty of Congress to come up with better laws.
If they can’t even get these basics done, how can we expect them to do something more abstract, less visceral, and more mathematical like monetary policy?
