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The debt crisis is primarily why I think we need inflation right now. Credit card debt. Subprime mortgage debt. Federal debt. College debt. It all feels brittl

by blagie 4y ago

The debt crisis is primarily why I think we need inflation right now. Credit card debt. Subprime mortgage debt. Federal debt. College debt. It all feels brittle.

jjtheblunt 4y ago
Why does inflation help? Since it devalues debt, it also devalues savings and earnings. I’m definitely misunderstanding something.
- ThorsBane 4y ago
  Because wages will increase more to account for higher productivity and booming business across the board. America's fundamentals are rock solid still. We are poised for considerable growth. Inflation would cheapen debt. Since wages have not caught up to productivity yet, we can see increased wages alongside the inflation which makes the real amount of consumer debt lower than it seems. It works out in the long run because we're behind on productivity gains affecting wages in many sectors, but that has been improving especially since 2020.
  - jjtheblunt 4y ago
    What if wages don't increase?
    - pg938hkd 4y ago
      They will lag so people will be poorer
    - ThorsBane 4y ago
      They have to because otherwise there's no more fuel for the ground floor of critical operations in every org. There have to be reliable people on the ground floor or all the profit gets lost. Most orgs hold debt, too. A rising tide would lift all boats in this case.
      - jjtheblunt 4y ago
        Why do you say most orgs hold debt? Apple and other big tech firms have tons of savings invested. And regarding people, in the US anyway, many hold debt, but many hold savings. If i'm understanding your description, it incentivizes holding debt?
- flangola7 4y ago
  Earnings can adjust fast to compensate for hyperinflation meanwhile the fraction of the population that have worthwhile savings has been steadily declining for a long time. For a massive amount of Americans significant devaluing of debt would be life changing in a positive way. Little to lose and lots to gain.
  - jjtheblunt 4y ago
    > Earnings can adjust fast to compensate for hyperinflation how?
    - pg938hkd 4y ago
      No they can’t otherwise wages would have been up 30% in the last 5 years
      - blagie 4y ago
        Wages, globally, are up at least that. Right now, wages in the US are much higher than most other parts of the world, but the fundamentals behind that are quickly disappearing. If I can hire equivalent talent in the US for $100k, EU for $50K, and Asia for $10k, that's a market friction. It's slowly levelling out. As that's happening, and cheap goods / services from outside the US are no longer cheap, our purchasing power goes down.
    - flangola7 4y ago
      How what? Salaries have been adjusted as frequently as hourly in places that experienced hyperinflation.
- Retric 4y ago
  Moderate inflation doesn’t devalue savings only liquidity. Coca-Cola doesn’t care about 5% inflation long term, they are going to sell for whatever inflation adjusted prices work. It’s always worth remembering that future cash flows aren’t guaranteed. The idea you can leverage fractions of a percent returns between loans and cash flows creates a great deal of fictional wealth that’s going to collapse at some point. Adding some real volatility to the financial system is critical for long term stability just as testing backup systems when you aren’t in a middle of a crisis.
- throwawayinfra 4y ago
  It helps debtors and America is a nation of debtors so. Definitely it pushes other countries to dump USD reserves faster I don't think they are gonna like to fund American infra with their money
- deleted 4y ago
  [deleted]
slaw 4y ago
We need bankruptcies not inflation. Not again privatizing profits and socializing losses.
- koheripbal 4y ago
  Bankruptcies happen all the time. Silicon Valley Bank and Signature Bank are great examples. In 2008, Lehman Brothers too, and Merrill Lynch, and hundreds of smaller banks and mortgage originators.
  - slaw 4y ago
    Fed started to print money to cover for SVB. https://europeanconservative.com/articles/analysis/silicon-valley-bank-fed-starts-printing-money-again/ https://europeanconservative.com/articles/analysis/silicon-v...
prepend 4y ago
Inflation is terrible for credit card debt as the card rate increases with inflation. It’s great for fixed rate things on stuff that appreciates with inflation (eg, mortgages) but inflation is going to super hose people that have variable rate loans on nothing tangible.

by blagie 4y ago

The debt crisis is primarily why I think we need inflation right now. Credit card debt. Subprime mortgage debt. Federal debt. College debt. It all feels brittle.

jjtheblunt 4y ago

Why does inflation help? Since it devalues debt, it also devalues savings and earnings. I’m definitely misunderstanding something.

ThorsBane 4y ago
Because wages will increase more to account for higher productivity and booming business across the board. America's fundamentals are rock solid still. We are poised for considerable growth. Inflation would cheapen debt. Since wages have not caught up to productivity yet, we can see increased wages alongside the inflation which makes the real amount of consumer debt lower than it seems. It works out in the long run because we're behind on productivity gains affecting wages in many sectors, but that has been improving especially since 2020.
- jjtheblunt 4y ago
  What if wages don't increase?
  - pg938hkd 4y ago
    They will lag so people will be poorer
  - ThorsBane 4y ago
    They have to because otherwise there's no more fuel for the ground floor of critical operations in every org. There have to be reliable people on the ground floor or all the profit gets lost. Most orgs hold debt, too. A rising tide would lift all boats in this case.
    - jjtheblunt 4y ago
      Why do you say most orgs hold debt? Apple and other big tech firms have tons of savings invested. And regarding people, in the US anyway, many hold debt, but many hold savings. If i'm understanding your description, it incentivizes holding debt?
flangola7 4y ago
Earnings can adjust fast to compensate for hyperinflation meanwhile the fraction of the population that have worthwhile savings has been steadily declining for a long time. For a massive amount of Americans significant devaluing of debt would be life changing in a positive way. Little to lose and lots to gain.
- jjtheblunt 4y ago
  > Earnings can adjust fast to compensate for hyperinflation how?
  - pg938hkd 4y ago
    No they can’t otherwise wages would have been up 30% in the last 5 years
    - blagie 4y ago
      Wages, globally, are up at least that. Right now, wages in the US are much higher than most other parts of the world, but the fundamentals behind that are quickly disappearing. If I can hire equivalent talent in the US for $100k, EU for $50K, and Asia for $10k, that's a market friction. It's slowly levelling out. As that's happening, and cheap goods / services from outside the US are no longer cheap, our purchasing power goes down.
  - flangola7 4y ago
    How what? Salaries have been adjusted as frequently as hourly in places that experienced hyperinflation.
Retric 4y ago
Moderate inflation doesn’t devalue savings only liquidity. Coca-Cola doesn’t care about 5% inflation long term, they are going to sell for whatever inflation adjusted prices work. It’s always worth remembering that future cash flows aren’t guaranteed. The idea you can leverage fractions of a percent returns between loans and cash flows creates a great deal of fictional wealth that’s going to collapse at some point. Adding some real volatility to the financial system is critical for long term stability just as testing backup systems when you aren’t in a middle of a crisis.
throwawayinfra 4y ago
It helps debtors and America is a nation of debtors so. Definitely it pushes other countries to dump USD reserves faster I don't think they are gonna like to fund American infra with their money
deleted 4y ago
[deleted]

slaw 4y ago

We need bankruptcies not inflation. Not again privatizing profits and socializing losses.

koheripbal 4y ago
Bankruptcies happen all the time. Silicon Valley Bank and Signature Bank are great examples. In 2008, Lehman Brothers too, and Merrill Lynch, and hundreds of smaller banks and mortgage originators.
- slaw 4y ago
  Fed started to print money to cover for SVB. https://europeanconservative.com/articles/analysis/silicon-valley-bank-fed-starts-printing-money-again/ https://europeanconservative.com/articles/analysis/silicon-v...

prepend 4y ago

Inflation is terrible for credit card debt as the card rate increases with inflation. It’s great for fixed rate things on stuff that appreciates with inflation (eg, mortgages) but inflation is going to super hose people that have variable rate loans on nothing tangible.