3 ms·

context is always important. It's bad if wages are also kept stagnant (and maybe artificially so by whoever's employing those people). For your 1 year old, it

by caycep 5y ago

context is always important. It's bad if wages are also kept stagnant (and maybe artificially so by whoever's employing those people). For your 1 year old, it's not a problem if that $1000 is invested in say an S&P fund If you hold a mortgage, it can potentially be good...

BitwiseFool 5y ago
It's not like the banks and lenders aren't wise to the idea of mortgage's getting reduced by inflation. They calculate and compensate for inflation and make offers accordingly.
- AlexandrB 5y ago
  I think this has cause and effect somewhat backwards. Often mortgage rates are based on the interest rate set by the central bank ("prime"). So if inflation is rampant and the central bank increases the prime rate to try to reduce inflation, variable mortgage interest rates will also increase. In the US, however, it's possible to get 25 year fixed rate mortgages. With the prime rate being so low, these can be had for 2-3%. This is very low! If many on HN are to be believed regarding a coming inflationary crisis this kind of mortgage will be hugely advantageous to those that have one because the debt will be massively devalued by rampant inflation.
- mason55 5y ago
  It's an interesting relationship. The banks take the current interest rate from the Fed into account and base the mortgage rate on that. They can try to project out and add some percentage for risk + inflation but if they add too much then there are 100 other banks ready to undercut them. So you get a fixed-rate mortgage based on the current interest rate from the central bank. And the amount of money that your mortgage covers (basically the price of your house) doesn't change. Which means that every year, as inflation causes wages to go up, you are paying for a house that cost whatever it cost when you bought it. But! Most people shop for houses based on what they can afford as an all-in payment. To put it another way, people can afford $x/month on housing, and it doesn't matter to them really how much is going to the price of the house and how much is going to interest. If interest rates rise (which happens along with inflation) then that means the percentage of someone's monthly payment that goes to the price of the house goes down, which has a depressing effect on housing prices. So your house payment becomes more affordable but the amount you can expect to get when you sell your house goes down (or rises more slowly).
syshum 5y ago
wages rarely keep up with inflation, real inflation, most companies are till running on 1-2% COLA annually, that is far far lower than actual inflation was, and much lower than inflation is now This is on the back of many companies having a wage freeze in 2020 due to the pandemic This is also why you will see alot of companies having a turn over crisis as switching employers will not be more profitable for employee's than every before. I see every limited signs that the HR dept's at most companies even recognize this problem currently, and the few that due are powerless to stop it because it seems many companies just refuse to give large annual raises to current staff but will happily replace them at high rates. This is with out even getting started on the Time bomb of SocSec, as they also have not kept payments up to meet inflation largely because they can not. there is no money to fund it. So if your retired depending on SocSec income for your survival you are screwed, better hope you have family you can live with >If you hold a mortgage, it can potentially be good... Hold debt is only good if you wages go up more than inflation. While sure you may pay less for the home itself, you repair and maintenance expenses are going up... Right now, some repair and maintenance cost for home ownership are leading inflation by ALOT
WillPostForFood 5y ago
For your 1 year old, it's not a problem if that $1000 is invested in say an S&P fund In the 1970's when the US had stagflation, S&P inflation adjusted returns from ~1968 to 1982. If you bought in 1968 you wouldn't really show gains until the early 1990s. https://www.macrotrends.net/2324/sp-500-historical-chart-data https://www.macrotrends.net/2324/sp-500-historical-chart-dat...

by caycep 5y ago

BitwiseFool 5y ago

It's not like the banks and lenders aren't wise to the idea of mortgage's getting reduced by inflation. They calculate and compensate for inflation and make offers accordingly.

AlexandrB 5y ago
I think this has cause and effect somewhat backwards. Often mortgage rates are based on the interest rate set by the central bank ("prime"). So if inflation is rampant and the central bank increases the prime rate to try to reduce inflation, variable mortgage interest rates will also increase. In the US, however, it's possible to get 25 year fixed rate mortgages. With the prime rate being so low, these can be had for 2-3%. This is very low! If many on HN are to be believed regarding a coming inflationary crisis this kind of mortgage will be hugely advantageous to those that have one because the debt will be massively devalued by rampant inflation.
mason55 5y ago
It's an interesting relationship. The banks take the current interest rate from the Fed into account and base the mortgage rate on that. They can try to project out and add some percentage for risk + inflation but if they add too much then there are 100 other banks ready to undercut them. So you get a fixed-rate mortgage based on the current interest rate from the central bank. And the amount of money that your mortgage covers (basically the price of your house) doesn't change. Which means that every year, as inflation causes wages to go up, you are paying for a house that cost whatever it cost when you bought it. But! Most people shop for houses based on what they can afford as an all-in payment. To put it another way, people can afford $x/month on housing, and it doesn't matter to them really how much is going to the price of the house and how much is going to interest. If interest rates rise (which happens along with inflation) then that means the percentage of someone's monthly payment that goes to the price of the house goes down, which has a depressing effect on housing prices. So your house payment becomes more affordable but the amount you can expect to get when you sell your house goes down (or rises more slowly).

syshum 5y ago

wages rarely keep up with inflation, real inflation, most companies are till running on 1-2% COLA annually, that is far far lower than actual inflation was, and much lower than inflation is now This is on the back of many companies having a wage freeze in 2020 due to the pandemic This is also why you will see alot of companies having a turn over crisis as switching employers will not be more profitable for employee's than every before. I see every limited signs that the HR dept's at most companies even recognize this problem currently, and the few that due are powerless to stop it because it seems many companies just refuse to give large annual raises to current staff but will happily replace them at high rates. This is with out even getting started on the Time bomb of SocSec, as they also have not kept payments up to meet inflation largely because they can not. there is no money to fund it. So if your retired depending on SocSec income for your survival you are screwed, better hope you have family you can live with >If you hold a mortgage, it can potentially be good... Hold debt is only good if you wages go up more than inflation. While sure you may pay less for the home itself, you repair and maintenance expenses are going up... Right now, some repair and maintenance cost for home ownership are leading inflation by ALOT

WillPostForFood 5y ago

For your 1 year old, it's not a problem if that $1000 is invested in say an S&P fund In the 1970's when the US had stagflation, S&P inflation adjusted returns from ~1968 to 1982. If you bought in 1968 you wouldn't really show gains until the early 1990s. https://www.macrotrends.net/2324/sp-500-historical-chart-data https://www.macrotrends.net/2324/sp-500-historical-chart-dat...