[hourago]

My parents, and all their generation, purchased their apartments with inflation over 10%. The first couple of years was harsh, they had to keep things tight so their salary can cover all their needs. Four years later, their loan was just a small part of their expenses. Eight years later, their loan was less than their phone bill. Inflation has taken their debt away. How is that worse than people being indebted for decades dedicating half their earnings for housing? Maybe inflation is corrosive for investing but maybe it is not bad for the average Joe.

Inflation so low as it has been kept the past decades has created a fantastic environment for investing. But it seems that has taken away any chances for average people to make a living. Hyper-inflation is bad, but low inflation is equally bad when it helps to concentrate wealth in a few hands.

I see many people demonizing inflation because it will hurt "investments". Maybe, it is time that something else than salaries hurt for a change.

[medellin]

Yes and it also penalizes people who want to plan ahead and save. At 10% inflation year over year what is the point in saving for a nice house that might take you 8 years to save up for.

What you describe benefits people who overextended themselves and got lucky. Not really the thing i care about encouraging

[high_priest]

Well, you can look at it from the opposite perspective. In an ever inflating economy, why 'save' when you can do literally the same thing by taking a loan, getting the thing now and paying for it over time? Both perspectives include risk where you don't get the thing' because you don't create enough capital in time. So why bother waiting, when you can get that thing now?

[s1artibartfast]

>In an ever inflating economy, why 'save' when you can do literally the same thing by taking a loan, getting the thing now and paying for it over time?

Because you cant get a loan. Lending is much more risky if the borrower doesn't have a down payment and their current income is meaningless in comparison to the loan interest compounded over 10-30 years.

Edit: another fact to consider is that in an economy where your only option is to borrow, you pay a premium to the lender and have no option

[ephbit]

The key assumption here is (for me):

> In an ever inflating economy, ...

Inflating the economy has been working over the course of the last century or even longer.

What many people appear to be oblivious of is that this growth has been fundamentally based upon a few factors: (a) very useful innovations in science/technology, (b) population growth and (c) almost limitless and thus cheap fossil energy in combination with ecosystems as basically humanity's landfill for all the waste streams of our ignorant and half-assed make-a-quick-buck-products.

(a) may very well continue delivering efficiency/productivity gains over decades to come or forever.

(b) and especially (c) are hitting ceilings right now.

I think this "ever inflating economy" has only been possible without much more frequent financial collapses because there was all this extra potential for use/misuse of natural resources available. This is what kept filling in actual consumable value/goods for all the inflated $.

With this extra potential becoming smaller and used up I very much doubt the current economic model can be kept running for more than another 15-20 years.

And with modern monetary theory MMT economists enticing politicians and naive optimists with their "yes, there is free lunch for everyone, don't you all worry about running deficits" message, the whole economic system is set up for hitting the ecological limits with the foot still on the accelerator.

[civilitty]

> What you describe benefits people who overextended themselves and got lucky. Not really the thing i care about encouraging

What he describes is risk taking which is generally praised here.

[medellin]

It could be considered risk taking. But there is a line between risk taking and stupidity. And true without more context it’s hard to decide here.

However risk taking on housing has historically turned out bad for individuals and the economy

[civilitty]

> However risk taking on housing has historically turned out bad for individuals and the economy

What are you basing that on? The GFC may be the most recent major crisis but home ownership is the American dream post-WWII.

[mikem170]

The American Dream ain't what it used to be...

Post-WWII a guy without a high school education was able to get a job at the steel plant, buy a house, raise a family, buy a rental in Florida, and retire with a pension.

The post-WWII U.S. economy was an anomaly - having half the worlds GDP. So many other industrialized countries were bombed and needed to rebuild. The U.S. was the factory of the world for a couple/few decades. We had security, capital, demographics, and productivity gains all in our favor during that time.

We no longer live in that economy. Members of today's millennial generation struggle to save for housing while paying down student loans. Many are still living with their parents. For those who want to have kinds it is common that both parents need to work. Wages have been stagnant for several decades. The government has subsidized 30 year fixed rate low interest mortgages, and the accumulated asset wealth this realized has benefited older generations, making housing much harder to afford for everyone else, a greater multiple of their incomes. Younger generations don't expect to do better than their parents. Maybe this explains the rise in populism. Is this sustainable? Can housing keep increasing in value? Or do we need to make changes?

[NikolaNovak]

I've lived through inflation. People who have not (my Canadian wife wife for one :) lack intuitive feeling to translate simple number into everyday occurrences. And every equation has two sides.

My parents did the same thing - they'd buy something expensive on loan and the loan would reduce with time in effective value. Great right? But what about the other side? The person /business that sold you that car or furniture or whatever is basically left hanging.

Worst part of inflation is that it makes saving impossible. There's no effective way to prepare for anything. Any money or earnings you have is basically slipping inexorably through your fingers as grains of sand.

Salary too! Unless my salary goes up with inflation (rare!) I'm literally getting paid less every month and every year. You may pray and hope somebody somewhere will provide for you (government or whatever) but as far as I can see, inflation comes for everybody eventually. It's a Gian game of chicken and race that tends to explode.

That doesn't mean that we can't and shouldn't have discussion what level of inflation may be "good", given myriad conflicting and contradictory goals and consequences and timelines. Deflation is bad for other reasons.

[arroz]

Agreed just adding, deflation is not bad if it is small (<< 1%)

[ashleyn]

Inflation favours debt holders, it disfavours others (notably cash holders).

[soVeryTired]

Subtle nitpick, but inflation favours fixed-rate debt holders. Floating rate debt holders can get burned pretty badly in an inflationary period.

[hourago]

> Floating rate debt holders can get burned pretty badly in an inflationary period.

So, it is the change in inflation, the raise, what makes it bad. If you ask for a loan when interest rates are at 15% your house price is going to be lower than when interest rates are at 1%.

So, you are right that "an inflationary period" as "increasing inflation" may be bad. But, maybe, the problem was that interest rates got to 1% . Such low interest make that just getting to a low 5% you are paying x5. Print more money, keep interest rates at 10% and unless they go up to 50% you are not so bad as people is nowadays.

[hsjqllzlfkf]

> If you ask for a loan when interest rates are at 15% your house price is going to be lower than when interest rates are at 1%.

In a stationary scenario, yes. But in a scenario where interest rates just jumped up after being very low for decades, it's likely that prices haven't come down in reaction to IR up. How long it takes for prices to react depends on other factors.

[saurik]

Is it really a "nitpick", though? People always trot out the argument that inflation helps people who hold debt, but I would think that the era of lenders irrationally handing out long-term loans at low fixed interest rates would have been over many decades ago, no?

[lotsofpulp]

Those long term low fixed rate loans with no prepayment penalty are ultimately underwritten by people who use USD, and US voters implicitly like that policy because they like seeing the price of their assets go up.

Without the taxpayer subsidy, I doubt any lender would offer those terms.

[zajio1am]

Nitpick: It is not inflation itself, but unexpected change of inflation rate. Expected inflation rate is neutral, because everyone accounted for it in interest rates.

[yunohn]

Debt is generally used to increase non-cash capital - housing, businesses, etc. Indeed makes sense that the elites want to ensure non-zero inflation.

[darkerside]

I don't see how inflation favors debt holders. That money you lent out us paying back at a fixed rate over time. Meanwhile, inflation means rates continue to rise, meaning your loan return looks worse and worse. Sure, it's better than doing nothing with your money, but I don't think debt holders are winning in a high inflation scenario.

[tmn]

I'm not sure which of you or the comment you replied to is using 'debt holder' correctly. But they meant inflation benefits the person who has to pay the debt back over time, not the person who issued the debt.

[carom]

Debt holder refers to the creditor.

[kobalsky]

> Maybe inflation is corrosive for investing but maybe it is not bad for the average Joe

Joe wins one game of musical chairs once in a while, but the banks won't lose money lending money, they will get their dues, and with the uncertainty of inflation they will err on the safe side and the other Joes will lose.

> Maybe, it is time that something else than salaries hurt for a change

Low and middle class people are the most affected because wages and salaries aren tied to an inflation index. Rich people have easier access to inflation resistant investments.

[zo1]

Most of the mortgages here in South Africa are variable interest rate. So whenever the government wants to "fight" inflation, they raise the interest rate. They cause a huge increase in the amount I have to pay to service the debt, to the point where it makes more sense to sell off that debt and just hoard the money somewhere else. Just a small anecdote.

[sukruh]

But that scenario also creates winners and losers, because a loan with an interest rate lower than inflation is wealth transfer from the creditor to the debtor. The privileged, who can access these loans get richer, while others lose access to the housing market due to ever increasing prices caused by these loans.

This wouldn't be a huge problem if it was a mistake by freely operating private creditors, who theoretically, would realise their error and try not to issue long term loans fixed at a rate lower than inflation. One could see this as a "bet" by the creditors that the inflation rate will decrease in the future and they'd make a profit. The problem is when state-backed creditors are forced to issue low-rate loans as a government policy of homeownership. There, a country's tax base ends up funding people who can access these loans, while everyone else ends up further from owning a home. This is what happened in Turkey in 2020.

[ozim]

Are there any banks where you live that give fixed rate mortgages?

Where I live getting fixed rate loan is in banks propositions but they will never give fixed rate to people.

They will claim that with your income you don’t qualify and you qualify for adjustable rate loan - which is only good for banks when inflation shoots up and previous years we had almost no inflation until it hit 20% out of nowhere. So all of it was calculated by banks and normal people who had it good for last 10-15 years now had to pay up.

[lotsofpulp]

Pretty much all (~90%) of all home mortgage loans are fixed rate with no prepayment penalty in the US, guaranteed by the federal US government taxpayers of course.

[bbojan]

I have a fixed-rate mortgage from a Canadian bank.

[s1artibartfast]

I don't think you can count on high inflation to counter wealth concentration. Well simply moves to inflation proof assets.

People living and to mouth aren't hurt by inflation as long as salaries track, but that's not the same as saying that it helps them.

Housing was cheap in the '70s because people couldn't save up to buy a house. Of course it worked out great for those that did, but that isn't the typical story

[rwnspace]

Have salaries ever tracked inflation, on average?

[Supermancho]

From some time in the 1900s until the late 1970s, in the US, iirc.

https://www.cbpp.org/research/poverty-and-inequality/a-guide...

Significant wealth inequality gaps and the lack of wage growth, in relation to inflation, coincide. There's a lot of data on this subject, but getting specifics on how the data is collected is very difficult (given the data collection is often decades old).

[s1artibartfast]

Yes, as a general rule of thumb salaries track or exceed inflation in the long run. If that weren't the case, everybody would be living in Huts eating gruel

[111111IIIIIII]

> Maybe inflation is corrosive for investing but maybe it is not bad for the average Joe.

*The average homeowner

[frankreyes]

I'm from Argentina. Wish you the best on high inflation.