Quora Answer: What Would Happen to Inflation if a Million People were Made Millionaires Overnight?

The following is my answer to a Quora question: “What would happen to inflation if a million people were made millionaires overnight?”

Millions of people become millionaires overnight all the time, and millions lose that status as well.  The definition of a millionaire is any person with a net worth of greater than a million dollars, often taken to be in US dollars.

In any large, developed economy, there would be people involved in business, who work, who own assets, who have substantial deposits or savings, who have insurance policies and other financial instruments and who own property, or an investment portfolio.  Every day, as the market moves, the value of their assets move as well.

For example, should the property market heat up substantially, every homeowner in an area would find themselves a millionaire on paper.  When the market does well, millions of investors become millionaires, but this is not a realised profit.  Since that does not equate with liquidity in the market, and increased purchases, it does not have substantive effect on inflation.  Considering the size of economies, and the financial market, this increase is negligible.

If, on the other hand, you are talking about a hypothetical scenario that a million people with no assets become millionaires overnight, that would be a million million.  That would be an extra trillion dollars in the economy.  Since this sudden wealth will likely be spent, this will greatly increase demand in certain sectors of the economy, and will temporarily spike up inflation.  Depending on the size of the economy, this could be a temporary inconvenience, requiring prescriptive cooling measures and a rate hike, or it could be devastating enough to destabilise it.