3 ms·
This is partly true, but lower income individuals also tend to have a higher % of their net worth eaten up by debt (via credit cards, loans, mortgages, medical
by jljljl 5y ago
This is partly true, but lower income individuals also tend to have a higher % of their net worth eaten up by debt (via credit cards, loans, mortgages, medical debt, etc). The burden of this debt decreases with inflation, since wages can grow to match inflation but past debt + fixed rates do not.
Combatting inflation by raising rates can also lead to more inequality -- wealthy investors can get higher return on "risk-free" products like treasuries and savings, which leads to lower investment in the economy, slower growth, and fewer jobs.
- cjbgkagh 5y agoThe proportion of the risk premium paid by poor people to the total total interest rate decreases with higher risk free interest rates.
- jljljl 5y agoTrue, but I don’t see why that matters? They will still be paying higher rates, with likely lower incomes, and a principle whose real value does not diminish over time (since debts are held in nominal terms). If their debts were issued with fixed rates, then inflation would eventually reduce the Real cost of their interest as well.