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

It should help reduce inflation, but not as directly as you outline. Most people aren’t funding discretionary spending directly from their retirement accounts. So income or cash flow isn’t really affected. But, people are less likely to spend discretionary money when they feel less wealthy or less secure about their retirement accounts. Inflation is about demand exceeding supply. Reduced retirement account values should absolutely reduce demand.