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?
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No, because the value of an asset isn’t “money” the way that economists think about it. When economists talk about money, they are talking about the [money supply](https://en.wikipedia.org/wiki/Money_supply) – the liquid currency available for spending.
_Edit: I should also mention that [velocity of money](https://en.wikipedia.org/wiki/Velocity_of_money) – how fast money is spent – matters too. The faster money changes hands, the faster we see inflation. Thanks, u/TbarretH for pointing that out._
An asset losing value doesn’t affect this very much. Lets say that you did buy some Bitcoin at $60k and not it is at $20k – you lost 2/3 of your wealth, but the amount of USD you have in the bank didn’t change by even $0.01. There is no more and no less currency floating around, so there is no direct impact to inflation.
Now, there may be second or third-order effects that affect inflation. A person who just lost 2/3 of their wealth is _probably_ not looking to spend extravigantly right now, and that will reduce the currency flowing through the economy.
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