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I'm saying that large businesses, governments, banks etc. are able to borrow in large quantities, at relative lower rates. Governments often borrow in astronom
by PKop 9y ago
I'm saying that large businesses, governments, banks etc. are able to borrow in large quantities, at relative lower rates.
Governments often borrow in astronomical numbers.
Anyone who does this (think of taking on massive debt to finance a real estate business, building apartment complexes for example) has incentives to prefer inflation, QE, devaluing the currency.
Over the course of lets say 30 years, they collect rents from tenants. They can increase the rents over time. Their payment on that debt will stay the same. So in "real" terms, the payments decrease over time, while the rent collected at least matches inflation.
Do you see now how those with ability to borrow large amounts to finance.. whatever.. have incentives to prefer inflation.
Think about the renter. Or the saver. Their dollars are going down in real value. The renter's monthly rent goes up.
Wages? They are sticky. They stay flat for long periods, which in real terms implies a wage cut.
"Inflation is taxation without legislation"
- Milton Friedman
“the arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislature. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her saving in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation. Either way, she is 'taxed' in a manner that leave her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120 percent income tax, but doesn't seem to notice that 5 percent inflation is the economic equivalent.”
― Warren Buffett
- bogomipz 9y ago>"Anyone who does this (think of taking on massive debt to finance a real estate business, building apartment complexes for example) has incentives to prefer inflation, QE, devaluing the currency." I understand why they might prefer devaluation and QE but not why anyone would prefer inflation. Can you explain? Inflation means that I need to borrow that much more.