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[–] 162 points 1 year ago (37 children)

Funny meme but also inflation is bad

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  • [–] 10 points 1 year ago (10 children)

    Not necessarily, if you own a home AND your pay slowly goes up to compensate (both of these unfortunately aren't happening for a lot of people), relative to your income your mortgage goes down.

    Or in more generic terms, inflation is good if you borrow money.

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  • [+] 5 points 1 year ago* (7 children)
  • [–] 5 points 1 year ago (5 children)

    Your maths is not right. Inflation, in absolute terms, is a larger benefit to people with higher interest rates.

    Let's consider the scenario where inflation is 10% for simplicity, and two borrowers who each borrow $100, but Borrower A at 5% annual simple interest and Borrower B at 25% annual simple interest. Both borrowers borrow the money at the beginning of Year 0.

    Borrower A owes $105 in Year 1 dollars at the beginning of Year 1. This is equivalent to $95.45 in Year 0 dollars.

    Borrower B owes $125 in Year 1 dollars at the beginning of Year 1. This is equivalent to $113.64 in Year 0 dollars.

    Compared to a 0% inflation rate, Borrower A saved 9.55 Year 0 dollars and Borrower B saved 11.36 Year 0 dollars. Borrower B saved 1.81 more Year 0 dollars than Borrower B due to inflation (but paid 17.55 Year 0 dollars more overall because of interest).

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  • [–] 1 point 1 year ago (4 children)

    Actually its the inverse. Borrower A is borrowing the equivalent of $105 and borrower B is borrowing the equivalent of $125 and after 5 years the amount they borrowed is equivalent to $160.

    Let's put this into more real terms. Lets say 30 years ago borrower C got a $100k mortgage at a 6% interest rate. Ignoring everything else that often gets lumped into "the house payment" (insurance, property taxes, HOA/condo association fees, closing fees, etc.) their monthly mortgage payment would be $599.55 for the entire lifetime of that mortgage. That $100k in 1995 dollars that was borrowed would be about $210k when adjusted for inflation. Those 360 payments would also conveniently equal out to roughly $215k meaning they effectively were loaned the money for free over the timescale, and that loan payment of $600 in 1995 is still a loan payment of $600 in 2025 despite the fact that that $600 in 1995 dollars is equivalent to about $1200 today.

    Basically with inflation, property ownership ensures a roughly decreasing cost of living over a lifetime and property has a tendency to gain value faster than a dollar does, so ultimately being able to get a mortgage creates wealth for the individual by stabilizing costs that would otherwise grow indefinitely and they gain an asset that generally increases in value.

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  • [–] 1 point 1 year ago (3 children)

    I'm a bit confused by what you're trying to say here. It seems non sequitur if you are trying to say "borrowers of higher interest rate benefit less from inflation".

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  • [–] 1 point 1 year ago (2 children)

    I wasn't the one who said that part. I just wanted to correct the simplified math with some real world numbers that put into perspective how much wealth just being able to get a mortgage sets one up for

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  • [–] 1 point 1 year ago (1 child)

    So what did you mean when you began your comment with "actually it's the inverse"? Inverse of what?

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  • [–] 1 point 1 year ago

    Honestly I don't remember. There's a solid chance I misunderstood the point you were trying to make. I do remember being weirded out by the way your example has the loans working so I wanted to give a more real-world example of how loans and inflation benefit the borrower

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  • [–] 2 points 1 year ago

    I mean it more like if you would have borred 100K for a house in the 70s that was a lot of money, if you still live in that house you probably paid it back, but even if you didn't 100K today isn't that much money anymore

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  • [–] 3 points 1 year ago (2 children)

    Inflation was added to your mortgage rate. And now that everyone saves with real estate instead of saving money, the cost of real estate is very high.

    So while your payments do go down over time, your hours worked to either rent or own have gone up.

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  • [–] 1 point 1 year ago (1 child)

    What do you mean with "inflation was added to your mortgage rate"? The prices of houses do go up but this is mostly a problem for first time buyers, after that your current house has gone up in price too, so that helps with the next house. But if you buy a house and don't move your mortgage is fixed for 20 or 30 years (unless you go without a fixed rate). So your monthly payment will stay the same, while hopefully your salary goes up.

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  • [–] 2 points 1 year ago

    As in, the rate of inflation was added to the mortgage rate you were offered. This is because tax incidence falls on the less elastic side of each trade, and credit supply is much more elastic than housing demand.

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  • [–] 2 points 1 year ago

    No inflation would mean that we would have no interest on our bank accounts, no wage increases, no profit increases etc. It is part of the circular economy, and it can work according to that theory, but we all together need to reform starting with the massive companies.

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  • [–] 6 points 1 year ago (23 children)
  • [–] 14 points 1 year ago (22 children)
  • [–] 58 points 1 year ago (4 children)
  • [–] 4 points 1 year ago

    For the longest time on 4chan’s literature board (which was a pretty useful and interesting place overall), there was a guy who would spam pictures and fan fiction of the girl from Willy Wonka getting turned into a blueberry.

    I have weird fetishes, so I don’t judge too much, but wtf.

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  • [–] 4 points 1 year ago (8 children)

    Are you seriously asking for a list of every economic downturn in history?

    When prices drop, unemployment goes up, people can't buy shit, rinse and repeat.

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  • [–] 11 points 1 year ago* (3 children)

    I think its more weird that in this situation where the cost of goods is raising faster then even the ’ normal ‘ rate faster then wages… you guys respond with it being preferable to the polar opposite…

    Sure you may be dying of thirst, but it’s better then drowning! Completely ignoring like reason and stuff.

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  • [–] 7 points 1 year ago (1 child)

    The situations end up exactly the same. Either things cost more than you can afford, or your money ain't worth shit to be able to afford anything. The only real difference is which number is fucked up: the price of the goods or the value of your money.

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  • [–] 6 points 1 year ago (2 children)

    Okay, show me this happening. Because literally every economic crisis I've had the privilege to live through, thanks the the Keynesians, the Chicago School of Business types, and Friedmans, has been associated with inflation.

    Show me. Prove it. These economists make claims and don't have to back them up with empirical data or theories that predict future states of the world.

    I don't make the assumption something is true because it sounds good and tells a good story. Prove it.

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  • [–] 1 point 1 year ago* (7 children)

    Deflation increases the value of money vs. goods and services. As a consequence, deflation concentrates economic power in the hands of people who already have money.

    If you have debt, deflation increases the value of your debt making it harder to pay off.

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  • [–] 5 points 1 year ago (2 children)

    If deflation was persistent, couldn't debt have a very low or even negative interest rate?

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  • [–] 4 points 1 year ago (1 child)

    Inflation makes goods aka stocks increase value, which makes rich fucks that live on loans be able to then ask another loan for a bigger amount to pay off the loan from before just because their assets passively rose in value.

    It's the scam by which the ultra rich live by doing absolutely nothing while the rest of us that are saving for a house or whatever see our savings year by year diminished.

    Yeah fuck that.

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  • [–] 2 points 1 year ago

    The issue is that they even get loans when they have no real collateral to give.

    Most people also have savings or a pension fund which is indirectly put into the stock market, that's how you get interest etc.

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