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Funny meme but also inflation is bad
Not necessarily, if you own a home AND your pay slowly goes up to compensate (both of these unfortunately aren't happening for a lot of people), relative to your income your mortgage goes down.
Or in more generic terms, inflation is good if you borrow money.
Or in more generic terms, inflation is good if you borrow money.
If your interest is less than inflation.
Like my colleague who bought a house for about 1.5% before inflation nearly went to 10. Man.
Biggest reason why I started paying an extra 1k for housing per month... In 5 years, my crappy "luxury" apartment will cost more per month than my house. In 10 years, people will think it's insane how cheap my house is per month.
Or the country could collapse and my property will be worthless, but at that point I got bigger problems.
Inflation reduces the real buying power of the money used to repay the loan by the inflation rate each year, regardless of your loan interest.
In absolute terms, inflation is better the higher your interest rate is, because the number of dollars it saves you goes up.
What does that mean? Where I live you borrow a certain amount of money and you pay it back plus interest (in my case 3.5%), and that percentage is fixed for 20 years. In 20 years I expect to have paid most of that entire amount back and my house should be mortgage free
Yeah. He borrowed money for a house at 1.5%. Then inflation hit almost 10 during covid and our salary didn't fully cover this but was raised way more than 1.5%. Money lost value much faster than his debt increased, so the banks effectively lose money on him while his paycheck grows faster than his debt increases.
inflation is good if you borrow money
at below the rate of inflation
Inflation going to 2% to 6% when you've got a credit card with a 30% APY is of very marginal benefit.
Your maths is not right. Inflation, in absolute terms, is a larger benefit to people with higher interest rates.
Let's consider the scenario where inflation is 10% for simplicity, and two borrowers who each borrow $100, but Borrower A at 5% annual simple interest and Borrower B at 25% annual simple interest. Both borrowers borrow the money at the beginning of Year 0.
Borrower A owes $105 in Year 1 dollars at the beginning of Year 1. This is equivalent to $95.45 in Year 0 dollars.
Borrower B owes $125 in Year 1 dollars at the beginning of Year 1. This is equivalent to $113.64 in Year 0 dollars.
Compared to a 0% inflation rate, Borrower A saved 9.55 Year 0 dollars and Borrower B saved 11.36 Year 0 dollars. Borrower B saved 1.81 more Year 0 dollars than Borrower B due to inflation (but paid 17.55 Year 0 dollars more overall because of interest).
Actually its the inverse. Borrower A is borrowing the equivalent of $105 and borrower B is borrowing the equivalent of $125 and after 5 years the amount they borrowed is equivalent to $160.
Let's put this into more real terms. Lets say 30 years ago borrower C got a $100k mortgage at a 6% interest rate. Ignoring everything else that often gets lumped into "the house payment" (insurance, property taxes, HOA/condo association fees, closing fees, etc.) their monthly mortgage payment would be $599.55 for the entire lifetime of that mortgage. That $100k in 1995 dollars that was borrowed would be about $210k when adjusted for inflation. Those 360 payments would also conveniently equal out to roughly $215k meaning they effectively were loaned the money for free over the timescale, and that loan payment of $600 in 1995 is still a loan payment of $600 in 2025 despite the fact that that $600 in 1995 dollars is equivalent to about $1200 today.
Basically with inflation, property ownership ensures a roughly decreasing cost of living over a lifetime and property has a tendency to gain value faster than a dollar does, so ultimately being able to get a mortgage creates wealth for the individual by stabilizing costs that would otherwise grow indefinitely and they gain an asset that generally increases in value.
I'm a bit confused by what you're trying to say here. It seems non sequitur if you are trying to say "borrowers of higher interest rate benefit less from inflation".
I wasn't the one who said that part. I just wanted to correct the simplified math with some real world numbers that put into perspective how much wealth just being able to get a mortgage sets one up for
So what did you mean when you began your comment with "actually it's the inverse"? Inverse of what?
Honestly I don't remember. There's a solid chance I misunderstood the point you were trying to make. I do remember being weirded out by the way your example has the loans working so I wanted to give a more real-world example of how loans and inflation benefit the borrower
Inflation, in absolute terms, is a larger benefit to people with higher interest rates.
Fair enough. I'm more thinking in a discrete sense... "saving money" versus "owing money"... rather than implicitly how much less are you paying.
I mean it more like if you would have borred 100K for a house in the 70s that was a lot of money, if you still live in that house you probably paid it back, but even if you didn't 100K today isn't that much money anymore
That's a historically unusual artifact of the financialized housing market in a country where the population outpaces new available housing units while the economy continues to grow.
Go to Italy or - God forbid - Iraq or Ukraine or Myanmar, and you'll find record inflation combined with falling real estate values. Buying a home in Lebanon or El Salvador or Bulgaria in 1975 wasn't a good move. You had to be a certain proximity near the US/EU money printing machines and a distance from the US/Russia bomb dropping machines to get that arbitrage to work.
Inflation was added to your mortgage rate. And now that everyone saves with real estate instead of saving money, the cost of real estate is very high.
So while your payments do go down over time, your hours worked to either rent or own have gone up.
What do you mean with "inflation was added to your mortgage rate"? The prices of houses do go up but this is mostly a problem for first time buyers, after that your current house has gone up in price too, so that helps with the next house. But if you buy a house and don't move your mortgage is fixed for 20 or 30 years (unless you go without a fixed rate). So your monthly payment will stay the same, while hopefully your salary goes up.
As in, the rate of inflation was added to the mortgage rate you were offered. This is because tax incidence falls on the less elastic side of each trade, and credit supply is much more elastic than housing demand.
This is true
Deflation is worse.
Prove it.
Okay, done and concluded. Thank you.
For the longest time on 4chan’s literature board (which was a pretty useful and interesting place overall), there was a guy who would spam pictures and fan fiction of the girl from Willy Wonka getting turned into a blueberry.
I have weird fetishes, so I don’t judge too much, but wtf.
you don't see very clear QEDs on the internet very often but it's always nice to see the reliance on data
I think you are required to make deflation porn a thing now. It's like a rule.
I'm imagining some dude getting sucked off so hard he turns into dust or a raisin.
Deflation increases the value of money vs. goods and services. As a consequence, deflation concentrates economic power in the hands of people who already have money.
If you have debt, deflation increases the value of your debt making it harder to pay off.
If deflation was persistent, couldn't debt have a very low or even negative interest rate?
Who would lend at a negative rate besides friends and family? Here's a bar of gold, please give me back half a bar of gold in a year.
Yeah I don't really understand that part either, but it has happened
How are you measuring the concentration of economic power - Gini coefficient?
Inflation makes goods aka stocks increase value, which makes rich fucks that live on loans be able to then ask another loan for a bigger amount to pay off the loan from before just because their assets passively rose in value.
It's the scam by which the ultra rich live by doing absolutely nothing while the rest of us that are saving for a house or whatever see our savings year by year diminished.
Yeah fuck that.
The issue is that they even get loans when they have no real collateral to give.
Most people also have savings or a pension fund which is indirectly put into the stock market, that's how you get interest etc.
Am explanation repeating the same wrong ideas isn't a proof
No inflation would mean that we would have no interest on our bank accounts, no wage increases, no profit increases etc. It is part of the circular economy, and it can work according to that theory, but we all together need to reform starting with the massive companies.