Can we address the claim that "inflation is good for debtors"? (economic discussion)

  1. Your income rises AND the price of living rises but…your original loan amount stays the same. You are paying back a loan with dollars that are worth less than when you borrowed them.

  2. If my income keeps up with inflation but my largest expense (debt) is fixed then I as a debtor am better off.

  3. It’s not about the debt being easier to pay off. It’s about what asset you purchase with that debt and having it increase in value at a higher rate than the payment. It makes your net worth increase.

  4. Best answer in the thread. Income is not even part of the discussion in the debtor class. In simple terms, if you bought a home anywhere in America 5+ years ago, the home value has most likely appreciated more than the original debt amount at this point. That appreciation can be rolled as equity into another property.

  5. When wages catch up to inflation, low interest fixed interest loans become a very small percentage of income. However, life until then could be hell.

  6. You make valid points. Inflation is good for the debtor only if you assume that his income increases with inflation and his debt service decreases as a proportion of his total cash outlay. That’s a big assumption, and often not true. I’ll add it to my list of reasons that inflation is worse than deflation.

  7. Moreover, all of your necessary costs increase with inflation... like utilities and groceries. This leaves you with less disposable income to pay off your loans.

  8. Inflation is strongest in housing costs and lower in wages. This is because with the fed, all money exists via debt and houses are the biggest sources of consumer debt. Every purchase of a house with a mortgage introduces new money into the system. No one saved and trusted you with 300k for a house. The bank took out a loan from the fed and adds on some interest for themselves and forwarded the loan to you. That money literally didn't exist before the purchase.

  9. It's not "good" for debtors but if you're not maxing out every available line of low-interest credit you can right now then you're missing out.

  10. You're missing the point. The main assumption when people discuss how inflation is good for debtors is that, while inflation may eat away at your buying power, it is assumed that your income is also rising. This line of thought is often applied in the real estate sector: inflation makes my debt on my properties cheaper because inflation implies that rents are going up.

  11. The only debt that this really applies to is a long term mortgage, like 30 years. If your income is the same after 30 years of inflation, well, your case would be a rare outlier.

  12. It’s generally true, but that’s not necessarily a good thing. The flip side is that it hurts creditors (savers and investors), in a strange form of wealth redistribution. And in the long run, perceived risk of unexpected inflation will make creditors less likely to lend or increase the rate and which they lend, hurting future debtors and the economy as a whole.

  13. It can help debtors, but it requires a particular setup for this to be true. Say your income is $100 and you spend $10 on your debt each period, and $90 on other expenses. Inflation goes up by %10, so the new income is 110$, but all your other expenses also go up 10% to $99. That leaves you with $11 to pay your $10 debt.

  14. It depends on the debt, and it's not really about paying off the debt faster, it's about accumulating wealth. Two different things entirely. If you're just buying shit with credit cards, yeah, inflation won't do jack for you.

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