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For a lot of it this comes down to mortgages. Someone who has a $4million mansion with a $1million loan has more debt in an absolute nominal number sense than s

by JanisL 5y ago

For a lot of it this comes down to mortgages. Someone who has a $4million mansion with a $1million loan has more debt in an absolute nominal number sense than someone with no assets and a $10k credit card debt. That said as household debt increases (due to things like credit cards) we are having a shift whereby many people on net own less than zero. For this group higher inflation won't be as bad as the impact on wealth as far as the debt/assets side of things goes. However it will still likely be bad for the poorest because wages tend to lag behind inflation and if the poorest people need their wages to service their debts they might still be falling behind more as a result of inflation. As always inflation will still be bad for anyone who is attempting to save money. On top of all this we have things like the Cantillon effect, so I just don't think higher inflation is as good for the poor - even with their newfound indebtedness - as people might be claiming.

RC_ITR 5y ago
>Someone who has a $4million mansion with a $1million loan has more debt in an absolute nominal number sense than someone with no assets and a $10k credit card debt. You are completely ignoring equity and are therefore incorrect. I was speaking about net worth, not whatever concept you're talking about ('outstanding cash-denominated leverage?') >we are having a shift whereby many people on net own less than zero. Yes, c. 50% of Americans, all of whom benefit from (wage) inflation in that scenario > it will still likely be bad for the poorest because wages tend to lag behind inflation and if the poorest people need their wages to service their debts they might still be falling behind more as a result of inflation. Source? This chart [0] seems to run counter to your claim, wages for non-supervisory employees move pretty in-line with inflation... >As always inflation will still be bad for anyone who is attempting to save money. Inflation and savings account interest rates have a complex relationship. For example, you could get 8%+ on a CD in 1990[1], when inflation was at about 6% (2% real yield). In the famously low inflation 2010's, you could maybe get 2% (0.5% real yield). >On top of all this we have things like the Cantillon effect, so I just don't think higher inflation is as good for the poor - even with their newfound indebtedness - as people might be claiming. Poor Americans being in debt is not new and not related to inflation. An re:Cantillon, a lot of work on pricing has been done since then, but I'm assuming from the above it's not really worth getting into here. [0]https://fred.stlouisfed.org/graph/?g=Jc6L https://fred.stlouisfed.org/graph/?g=Jc6L [1] https://www.depositaccounts.com/blog/historical-cd-rates.html https://www.depositaccounts.com/blog/historical-cd-rates.htm...
- JanisL 5y ago
  > IDK why everyone on HN thinks that the affluent have debt, when in fact, the bottom 50% of Americans hold less that 4% of wealth because most of them are in net debt, largely to entities owned by the affluent. The wealthiest people by definition have more equity than they do debt (which is why they are wealthy) but that doesn't mean that they don't hold debt. I think this is why most people think the affluent have debt obligations and frankly in the current markets there are incentives to have debt when real rates are this negative. Poorer people are also holding more debt, basically there's a lot more debt everywhere these days. Regarding the chart CPI is not the same as monetary inflation but yet CPI is frequently used to make inflation-adjusted securities. And since CPI does all sorts of intellectually dishonest mental gymnastics with regards to "hedonic adjustments" these days its a less reliable metric than it was in the past of how cost of living has changed over time: https://wolfstreet.com/2019/12/05/what-worries-me-about-hedonic-quality-adjustments-cpi/ https://wolfstreet.com/2019/12/05/what-worries-me-about-hedo...

by JanisL 5y ago

RC_ITR 5y ago

>Someone who has a $4million mansion with a $1million loan has more debt in an absolute nominal number sense than someone with no assets and a $10k credit card debt. You are completely ignoring equity and are therefore incorrect. I was speaking about net worth, not whatever concept you're talking about ('outstanding cash-denominated leverage?') >we are having a shift whereby many people on net own less than zero. Yes, c. 50% of Americans, all of whom benefit from (wage) inflation in that scenario > it will still likely be bad for the poorest because wages tend to lag behind inflation and if the poorest people need their wages to service their debts they might still be falling behind more as a result of inflation. Source? This chart [0] seems to run counter to your claim, wages for non-supervisory employees move pretty in-line with inflation... >As always inflation will still be bad for anyone who is attempting to save money. Inflation and savings account interest rates have a complex relationship. For example, you could get 8%+ on a CD in 1990[1], when inflation was at about 6% (2% real yield). In the famously low inflation 2010's, you could maybe get 2% (0.5% real yield). >On top of all this we have things like the Cantillon effect, so I just don't think higher inflation is as good for the poor - even with their newfound indebtedness - as people might be claiming. Poor Americans being in debt is not new and not related to inflation. An re:Cantillon, a lot of work on pricing has been done since then, but I'm assuming from the above it's not really worth getting into here. [0]https://fred.stlouisfed.org/graph/?g=Jc6L https://fred.stlouisfed.org/graph/?g=Jc6L [1] https://www.depositaccounts.com/blog/historical-cd-rates.html https://www.depositaccounts.com/blog/historical-cd-rates.htm...

JanisL 5y ago
> IDK why everyone on HN thinks that the affluent have debt, when in fact, the bottom 50% of Americans hold less that 4% of wealth because most of them are in net debt, largely to entities owned by the affluent. The wealthiest people by definition have more equity than they do debt (which is why they are wealthy) but that doesn't mean that they don't hold debt. I think this is why most people think the affluent have debt obligations and frankly in the current markets there are incentives to have debt when real rates are this negative. Poorer people are also holding more debt, basically there's a lot more debt everywhere these days. Regarding the chart CPI is not the same as monetary inflation but yet CPI is frequently used to make inflation-adjusted securities. And since CPI does all sorts of intellectually dishonest mental gymnastics with regards to "hedonic adjustments" these days its a less reliable metric than it was in the past of how cost of living has changed over time: https://wolfstreet.com/2019/12/05/what-worries-me-about-hedonic-quality-adjustments-cpi/ https://wolfstreet.com/2019/12/05/what-worries-me-about-hedo...