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It is going to be a problem because in an inflationary monetary system, you need to give out loans at a constantly increasing rate in order to pay off the debt
by cryptica 6y ago
It is going to be a problem because in an inflationary monetary system, you need to give out loans at a constantly increasing rate in order to pay off the debt of the previous generation.
If the new generation is not growing fast enough, they will not be able to afford to take out enough new debt to buy assets from the previous generation (thus allowing the previous generation to pay of their debts from the sale or lease of real estate), then prices could crash quickly when the previous generation starts defaulting on their loans.
It's also why real estate prices are so high in Japan. The older generation needs to squeeze out as much as they can from each member of the younger generation since there are so few of them in numbers.
- freetime2 6y agoI’m wondering what you mean by “real estate prices are so high in Japan”? Relative to other countries? Or some point in the past in Japan? My assumption is that declining population is leading to surplus housing and declining real-estate prices in most of the country. And even in the Tokyo area where demand is still strong, homes are still more affordable than in other large cities like New York and London.
- mathattack 6y agoI suspect it’s a historical observation. They used to be crazy high. (I lived in Tokyo over a decade ago. Prices were crazy then, but they’re roughly the same now. Meanwhile SF has gone up at least 3X in that timeframe)
- tonyedgecombe 6y agoThere was a boom but this pre-dated the debt issue we are discussing in this part of the thread.
- kazinator 6y agoYou can buy a detached house in the Tokyo Metropolitan area for less than a 1 bedroom condo in Vancouver, Canada. An old house for significantly less. This broad observation is easily confirmed by browsing real estate listings. E.g. random hit: small 3LDK house in Kashiwa built in 1981: https://house.goo.ne.jp/buy/uh/detail/4/12217/37091100002300/3709110/x437091100002300.html https://house.goo.ne.jp/buy/uh/detail/4/12217/37091100002300... 6000000 yen ~= $60K USD.
- mathattack 6y agoIt’s the opposite, no? In an inflationary environment your debt is worth less. (More money is printed to pay it off) That’s why countries inflate it away.
- imtringued 6y agoYes, if there is a shortage of young labor then young labor can simply demand higher wages.