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Inflation favors the debtor, while deflation favors the saver. Obviously the world's largest debtor (US govt) will consider inflation to be desirable and necess

Inflation favors the debtor, while deflation favors the saver. Obviously the world's largest debtor (US govt) will consider inflation to be desirable and necessary. Otherwise it would lead to a sovereign debt crisis if there are positive real interest rates leading to a US govt default. Keep an eye on the Fed, especially before the midterm elections. The Biden administration will put an extreme amount of pressure to continue quantitative easing, even if the Fed is signaling that rate hikes are coming soon.

dragonwriter 5y ago
> Inflation favors the debtor, while deflation favors the saver No, deflation favors currency hoarders and lenders; the primary mechanism of saving is investment in productive assets, which deflation disfavors. > Obviously the world's largest debtor (US govt) will consider inflation to be desirable and necessary. Except it doesn't, except at a very low level; inflation in general (and energy inflation, in particular, which is one of the main factors in the current overall inflation) is one of the most well-established objective factors adverse to reelection of incumbent politicians in the US. > Keep an eye on the Fed, especially before the midterm elections. The Biden administration will put an extreme amount of pressure to continue quantitative easing, even if the Fed is signaling that rate hikes are coming soon. If? The Fed is already tapering QE, scheduled to end it mid-March, and signalling a mid-March rate hike.
- imtringued 5y ago
  I wish we could finally end the inflation farce. A demurrage fee has only to be paid on liquidity i.e cash and demand deposits. If people lend their money at 0% interest they can save money. Since financing is much cheaper companies can afford to pay workers more. Inflation can be controlled via price level trageting all the way to zero.
xyzzyz 5y ago
Inflation only favors the debtor if he doesn’t have to take on more debt. USG has a lot of short term debt it needs to continuously roll over. If inflation persists, the yields will go up, so USG will roll over the current low interest rate debt to new high interest rate debt. Given how much debt it has, the service payments will skyrocket: at 130% debt to GDP ratio, and at 27% tax to GDP ratio, each 1 percentage point increase in yields translates to additional 1.3% worth of GDP going to debt service payments, which is around 5% of total government spending. That means that if current inflation persists, and the bond investors will expect 7% inflation instead of 2% inflation, they’ll demand bond yields to be at least 5 percentage points higher. This will make the debt service payments go from current 6% of the budget to nearly 1/3rd of it, a tremendous increase. This will only increase fiscal pressure on the government, making it less credit worthy, which will push yields even higher. No, if you’re indebted above your head with mostly short term debt, inflation does not make you happy.

dragonwriter 5y ago

> Inflation favors the debtor, while deflation favors the saver No, deflation favors currency hoarders and lenders; the primary mechanism of saving is investment in productive assets, which deflation disfavors. > Obviously the world's largest debtor (US govt) will consider inflation to be desirable and necessary. Except it doesn't, except at a very low level; inflation in general (and energy inflation, in particular, which is one of the main factors in the current overall inflation) is one of the most well-established objective factors adverse to reelection of incumbent politicians in the US. > Keep an eye on the Fed, especially before the midterm elections. The Biden administration will put an extreme amount of pressure to continue quantitative easing, even if the Fed is signaling that rate hikes are coming soon. If? The Fed is already tapering QE, scheduled to end it mid-March, and signalling a mid-March rate hike.

imtringued 5y ago
I wish we could finally end the inflation farce. A demurrage fee has only to be paid on liquidity i.e cash and demand deposits. If people lend their money at 0% interest they can save money. Since financing is much cheaper companies can afford to pay workers more. Inflation can be controlled via price level trageting all the way to zero.

xyzzyz 5y ago

Inflation only favors the debtor if he doesn’t have to take on more debt. USG has a lot of short term debt it needs to continuously roll over. If inflation persists, the yields will go up, so USG will roll over the current low interest rate debt to new high interest rate debt. Given how much debt it has, the service payments will skyrocket: at 130% debt to GDP ratio, and at 27% tax to GDP ratio, each 1 percentage point increase in yields translates to additional 1.3% worth of GDP going to debt service payments, which is around 5% of total government spending. That means that if current inflation persists, and the bond investors will expect 7% inflation instead of 2% inflation, they’ll demand bond yields to be at least 5 percentage points higher. This will make the debt service payments go from current 6% of the budget to nearly 1/3rd of it, a tremendous increase. This will only increase fiscal pressure on the government, making it less credit worthy, which will push yields even higher. No, if you’re indebted above your head with mostly short term debt, inflation does not make you happy.