the Inflation thread

[ShebaPoe]

The topic of inflation is brought up frequently here. One article discussed said that inflation was actually a great thing for the economy. Often, people on here will say that inflation lowers the real cost of repaying debt, and the borrower actually "wins" in an inflationary environment.

If that's true, who loses?

I am pretty sure that money is subject to newton's third law: for every action there is an equal and opposite reaction. In other words, if inflation is making someone better off in real terms, it must be making someone else equally worse off.

So, who is being made worse off?

[Guerilla poster]

inflation lowers wages.....so good for the wage payers.

[FormLetter]

First borrower wins. Last borrower loses.

[FormLetter]

Originally Posted by Guerilla poster

inflation lowers wages.....so good for the wage payers.

How so hombre?

[E. Blackadder]

Originally Posted by ShebaPoe

The topic of inflation is brought up frequently here. One article discussed said that inflation was actually a great thing for the economy. Often, people on here will say that inflation lowers the real cost of repaying debt, and the borrower actually "wins" in an inflationary environment.

If that's true, who loses?

I am pretty sure that money is subject to newton's third law: for every action there is an equal and opposite reaction. In other words, if inflation is making someone better off in real terms, it must be making someone else equally worse off.

So, who is being made worse off?

People on salary, (i.e. most actuaries).

[Guerilla poster]

Originally Posted by FormLetter

How so hombre?

what you asking? Real wages decrease...that can be good for profit margin.

I know, I know, too Krugmanish

[Atropellador]

Inflation reduces the purchasing power of cash, so anyone with cash savings loses.

I'm tired of hearing we need inflation to protect borrowers. Don't bite off more (debt) than you can chew.

[Guerilla poster]

inflation hurts the old wealthy people with savings

[ShebaPoe]

Originally Posted by E. Blackadder

People on salary, (i.e. most actuaries).

So as mortgage borrowers win, salaried workers are the losers? What if the salaried workers are also mortgage holders? How can the same person be a winner and loser in equal proportion on the same deal? That seems to imply that the end result is, net, no change. Yet, people say that inflation lowers the real cost of debt service...so there must be a loser.

[ShebaPoe]

Originally Posted by Atropellador

Inflation reduces the purchasing power of cash, so anyone with cash savings loses.

I'm tired of hearing we need inflation to protect borrowers. Don't bite off more (debt) than you can chew.

So the people with cash are losers while the debtors are winners? Possible, but only to a very limited extent. There is only about a trillion in cash in existence, and over ten times that in personal debt. So it seems like at a moderate inflationary clip, the real value of debt reduction would soon outpace the total amount of cash in the system. Doesn't seem like cash holders are absorbing the whole loss.

I'm tired of it, too. But I don't see a lot of efforts to "protect" borrowers. Foreclosures seem to be happening at record pace over the last 5 years. At times they slowed for judicial reasons, but there hasn't been any meaningful dent made in the foreclosure efforts. I might have missed some things...where do you see "borrowers" being protected?