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by arcticbull
1596 days ago
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Not trying to blame anyone for anything here! My point was that in isolation, if wages keep pace with inflation, inflation benefits debtors (especially long term structured debt like mortgages) because you take out the debt in today dollars and can repay them with future dollars worth less. For instance I have a 2.75-ish% APR 30 year fixed rate mortgage but inflation was 7%, so I made a ton of money by having that debt - factoring in tax breaks, I made nearly 6% return by having that mortgage over paying off my house. I’m suggesting that lower and middle class folks have far more debt as a percentage of net worth and therefore benefit more as a percentage of net worth than wealthy folks from inflation (“being at the spigot”). This is roughly right, as inflation rates go up to 12% inequality actually declines. Rich folks lose money on equities due to DCF modeling and folks with debt see it inflate away. I can find the study if you like. But this is all conditional on wages keeping pace. |
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Agree. This is one effect of inflation that's beneficial for debtors.
There's another effect that lets especially lower wealth/income groups look not so good: the structure of net worth. Wealthy and high income group people typically have assets that will be more or less inflation neutral. I don't need to make a list: real estate, stocks, ... the big fortunes consisting of these won't care one bit about inflation. Low income people mostly don't have these. If they own anything at all, it's mostyl cash, so hit 100 % by inflation.
> But this is all conditional on wages keeping pace.
Here's the catch ... according to [1]:
> Research by the McKinsey Global Institute found that between 65% and 70% of people in 25 advanced countries saw no increase in their earnings between 2005 and 2014.
You might say, hey, we didn't have much inflation according to CPI from 2005 to 2014. Well, then just take housing prices, which make up a big chunk of most peoples' expenses and have increased significantly over this period according to OECD data [2].
[1] https://www.theguardian.com/business/2016/jul/14/up-to-70-pe... [2] https://data.oecd.org/chart/6yZt