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> Deflation means houses and capital assets are worth less than they were before, so people with a positive net worth are "hurt". That's wrong, houses can be b
by jafaku 13y ago
> Deflation means houses and capital assets are worth less than they were before, so people with a positive net worth are "hurt".
That's wrong, houses can be bought with less money because the purchasing power of money increased, not because houses are losing value. In a deflationary economy, the owner of a house could be richer if instead he holds money. By holding the house instead of money he has the same wealth (assuming the value of the house didn't change for other reasons).
- drakaal 13y agoYou countered your own argument. If your house stays at $100k but there is 5% deflation. You made 5%. If your house is worth $100k but falls to $95k because of deflation, your networth has dropped, and your buying power has stayed the same. In the first scenario you can do a happy dance, in the second scenario, if the house is 100% paid off you aren't out anything. If you have paid off 75% of the house you are behind, because the unpaid off portion of the home dropped in value, but the debt stayed the same. This is why they try to keep inflation at 2-3% it means that debt decreased at that rate because your buying power for that financed amount has decreased effectively lowering the amount of debt. Imagine you buy a house and pay only the interest. If inflation is at 7% and the interest is 3% you are ahead each year. I your interested is 3% and there is 3% deflation you are behind each year.
- deleted 13y ago[deleted]