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> Also deflation is the number 1 enemy of central banks and the economy in general. I've always thought this was a weird claim, put this simply. Consumer elect

> Also deflation is the number 1 enemy of central banks and the economy in general. I've always thought this was a weird claim, put this simply. Consumer electronics and computers have been deflationary for ever: You can always get a better TV, phone, or computer for less money if you are willing to wait for a year. Yet people can't stop buying them. Because they want them enough. Deflation should only hurt businesses producing stuff that customers aren't really interested in. > businesses that can't go bankrupt (because you can't miss interest payments if there's no interest) I would expect that on business loans you don't just pay interest, you are also expected to regularly pay back actual fractions of the principal. But I admit that I don't know how this works. > The poor can't get significant credit so they are forced to finance the "stuff" that the rich own by renting it from them. I've never understood this angle either. Buying stuff doesn't make stuff appear out of thin air. Buying stuff means buying stuff from the people who already have it, which for valuable things like housing is already the rich. The difference between buying an apartment and renting it is whether I give the rich person 30 years' worth of rent right now in a lump some or slowly over time. I don't see how I "win" against the rich person by giving them my money earlier.

Retric 7y ago
The real issue in a deflationary situation loans effectively become more not less expensive vs 0 inflation situations. Lending always carries the risk of not being paid back, where you can always just keep your own money. So, a 100$ loan needs to return the original 100$ + the risk + some incentive not to use this money for something else. Thus loans are effectively the absolute value of (inflation or deflation rates) + a constant factor.
bboygravity 7y ago
> I've never understood this angle either. Buying stuff doesn't make stuff appear out of thin air. Buying stuff means buying stuff from the people who already have it, which for valuable things like housing is already the rich. The difference between buying an apartment and renting it is whether I give the rich person 30 years' worth of rent right now in a lump some or slowly over time. I don't see how I "win" against the rich person by giving them my money earlier. There are 2 ways to make a profit on a property investment: 1. Sell at a higher price in the future which offsets all of the costs of holding the property (rented out or not). 2. Rent out at a higher monthly price than whatever the monthly cost is (cost spread out over whatever your investment horizon is), right now. Number 2 means (assuming the house was purchased on credit, which at negative interest rates it should always be as much as possible) that you as the renter(s) are paying back the owners credit he took out for the house, the house's maintenance, the owner's house insurance and taxes and all other costs + THE APPRECIATION IN VALUE OF THE HOUSE FOR THE TIME YOU RENT (higher housing prices = higher monthly rent) + a profit. When you buy a house, you're not giving the owner 30 years worth of rent. You're giving the owner the value of the house, which is way less than the accumulated rent would be over 30 years. Buying a house (on credit) is only ever a net loss if the house's value goes down significantly for whatever reason. Reasons can be: uninsured destruction (war, fire, bad renters) or deflation (due to oversupply of houses such as is the case in Japan right now or due to the overall economy going bad). In other words: assuming a healthy economy, buying a property as an investment (with a 15 - 30 year investment horizon to be able to spread all initial costs over a longer period of time) is ALWAYS a win assuming you can find renters. In the current market (at least in most cities of Western Europe) you will always find renters, because a significant part of the population who would like to buy a house simply can't get the credit they need to buy a house close to where their employment is. Due to the housing prices being too inflated relative to average income from employment. Summary: housing prices higher than the credit people can afford = people can't get credit to buy a house = lots of renters on the market (people rent instead) = makes it interesting to own houses to rent out for profit = housing prices higher = poor people can't get credit to buy a house = lots of renters on the market and so on. See what's happening? Those who can afford real estate investments start receiving an ever larger portion of the income of people who can't afford real estate investments. AKA: the poor and middle class get poorer and the rich get richer.
- tom_mellior 7y ago
  > AKA: the poor and middle class get poorer and the rich get richer. Yes, that's what I said. If the rich control apartments, they can always arrange to get richer. I cannot cheat them out of that.

Retric 7y ago

The real issue in a deflationary situation loans effectively become more not less expensive vs 0 inflation situations. Lending always carries the risk of not being paid back, where you can always just keep your own money. So, a 100$ loan needs to return the original 100$ + the risk + some incentive not to use this money for something else. Thus loans are effectively the absolute value of (inflation or deflation rates) + a constant factor.

bboygravity 7y ago

> I've never understood this angle either. Buying stuff doesn't make stuff appear out of thin air. Buying stuff means buying stuff from the people who already have it, which for valuable things like housing is already the rich. The difference between buying an apartment and renting it is whether I give the rich person 30 years' worth of rent right now in a lump some or slowly over time. I don't see how I "win" against the rich person by giving them my money earlier. There are 2 ways to make a profit on a property investment: 1. Sell at a higher price in the future which offsets all of the costs of holding the property (rented out or not). 2. Rent out at a higher monthly price than whatever the monthly cost is (cost spread out over whatever your investment horizon is), right now. Number 2 means (assuming the house was purchased on credit, which at negative interest rates it should always be as much as possible) that you as the renter(s) are paying back the owners credit he took out for the house, the house's maintenance, the owner's house insurance and taxes and all other costs + THE APPRECIATION IN VALUE OF THE HOUSE FOR THE TIME YOU RENT (higher housing prices = higher monthly rent) + a profit. When you buy a house, you're not giving the owner 30 years worth of rent. You're giving the owner the value of the house, which is way less than the accumulated rent would be over 30 years. Buying a house (on credit) is only ever a net loss if the house's value goes down significantly for whatever reason. Reasons can be: uninsured destruction (war, fire, bad renters) or deflation (due to oversupply of houses such as is the case in Japan right now or due to the overall economy going bad). In other words: assuming a healthy economy, buying a property as an investment (with a 15 - 30 year investment horizon to be able to spread all initial costs over a longer period of time) is ALWAYS a win assuming you can find renters. In the current market (at least in most cities of Western Europe) you will always find renters, because a significant part of the population who would like to buy a house simply can't get the credit they need to buy a house close to where their employment is. Due to the housing prices being too inflated relative to average income from employment. Summary: housing prices higher than the credit people can afford = people can't get credit to buy a house = lots of renters on the market (people rent instead) = makes it interesting to own houses to rent out for profit = housing prices higher = poor people can't get credit to buy a house = lots of renters on the market and so on. See what's happening? Those who can afford real estate investments start receiving an ever larger portion of the income of people who can't afford real estate investments. AKA: the poor and middle class get poorer and the rich get richer.

tom_mellior 7y ago
> AKA: the poor and middle class get poorer and the rich get richer. Yes, that's what I said. If the rich control apartments, they can always arrange to get richer. I cannot cheat them out of that.