3 ms·
Wouldn't inflation actually be much more harmful for a loan-based economy like the US?
by foverzar 4y ago
Wouldn't inflation actually be much more harmful for a loan-based economy like the US?
- 082349872349872 4y agoI don't believe so in the long run (but RC_ITR might have something much more accurate to say; thanks very much for the sibling analysis!). We're a much smaller economy than the US, and have a big problem that whenever there's geopolitical instability, flight to quality appreciates our currency massively (despite negative nominal rates; we've broken pegs before because although they would've been nice to keep, the cost would've been prohibitive), which then hoses our innovative sectors, because they had been counting on being competitive in global exports. I had been imagining that keeping a currency too elevated for too long would eventually stifle growth, and that would defo be more harmful than inflation. (for a loan-based economy, for example, substantial appreciation might mean that many borrowers would just default, for lack of any other option) Edit: see the cousin comment: ...it was extremely hard to build a sustainable business in Russia, due to the fact that it was just cheaper to buy something from abroad
- dragonwriter 4y ago> Wouldn't inflation actually be much more harmful for a loan-based economy like the US? No, hence the speed and strength of Fed responses to anticipated deflation vs. anticipated above-optimal inflation. OTOH, the Fed is also why the theoretical adverse impact is unlikely to materialize in any real world scenario.