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Newly issued money is explicitly used to increase the supply of debt by manipulating its price. When that new money enters the economy, it obscures the amount of actual resources available until it circulates through the economy and prices adjust - this is whether the rate is constant or not.

Thus, it gives debtors a permanent and systemic subsidy at the cost of savers. Prices only adjust *after* new debtors bid up prices in the market with new money.

You are correct that a significant change in the rate is more *disruptive,* but persistent inflation in the money supply is a subsidy for debtors either way.

Laan Tungir 6mo ago

Possibly, but I'm not so sure.

Firstly, my premise was that this isn't the case if inflation stays constant, which means that this process has been going on at the same rate for some time.

So why if this has been going on for some time, and you are loaning me money, am I able to get the better of you? Why won't you charge me a higher rate?

You have seen this process going on at the same rate for some time, and so have I. You could charge me a higher rate, and I would be willing to pay it because we can both see the past ... why am I able to take advantage of you?

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Discussion

Guy Swann 6mo ago

The money supply has increased pretty reliably at about 7% per annum for like 50 years. Mostly mild fluctuations with a few exceptions. I would pose the question as to why you can get a 4-5% mortgage right now?

I think the answer is that we have to have a clear way to measure against the past. It’s only in the comparison to a harder asset that has enough liquidity that we can even see the degradation of the currency and accurately price it. (CPI is total garbage for this)

This is why I think the presence of bitcoin is the only thing that will actually restore real interest rates.

Laan Tungir 6mo ago

Okay, I think the argument that for a long time now, mortgage rates have been less than that of monetary debasement (what we call inflation on nostr) is the best argument for the case that steady inflation favors borrowers.

I guess the counter to that would be that the mortgage market is heavily subsidized (Freddie, Fannie, etc), and it is the subsidy that is causing the advantage for borrowers, not the constant inflation.

Guy Swann 6mo ago

The other direct subsidies definitely add to it, but i think the bigger systemic subsidy is inflation. Which, you are theoretically right, SHOULD even out with the interest rate. But the problem is you need enough liquidity on something that is unaffected by the false interest rates, in order to “release the pressure” so to speak. Theres just nothing large enough to actually be the value check on mispricing tens of trillions of dollars in loans every year.