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

No. There isn’t money attached to value. If you own a $500,000 home, there isn’t $500,000 attached to that home. It is just a valuation. For example, an artist cannot paint a picture and claim it is worth $10million dollars and expect $10million dollars to be created simply because of that picture.

What will likely happen is that because asset values are dropping, some/many people might feel less wealthy (their assets have depreciated in value) and therefore opt to spend less and save more. This reduced spending should contribute to lower inflation. So there is definitely an impact on inflation when assets devalue but it is somewhat indirect.