ELI5. If inflation is driven partly by surplus money in the system, will big losses in stocks and crypto reduce inflation by reducing the amount of money?

Question

I keep hearing about multi-trillion dollar losses in retirement funds, investment funds, and crypto markets. If all that value is evaporating, doesn’t it increase the value of currency and reduce inflation?

In: 45

Answer 1

Yes…. And no. If our current inflation situation was being driven by too much money in the system then the loss of all that wealth would certainly hamper spending since people can no longer withdraw those investments or borrow against them and in some cases have to pay back when they over-extended themselves. They also need to start saving again to recover from those losses.

However, the current inflation situation is being driven by supply shortages and also gouging. We know this because the same inflation is happening all over the world regardless of the individual money supply policies. At the end of the day, the solution is to normalize the supply situation. All the rest is just damaging the economy to prevent even more damage from inflation.