Most of the disinformation around "we need inflation" and "deflation is bad" can be understood with one simple pair of facts:
- deflation is bad for debtors & good for savers
- debts represent net destruction of resources, savings represent net creation
So which do you want to reward, destroying or creating resources?
As a product of manipulation, deflation can be terrible as well. Check Brazil in the early 90s.
As long as it is a result of increased productivity I agree it’s probably a good thing.
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Can you expand on how debt represents net destruction?
If I eat 100 meals on a credit card, it explicitly means that i recognize i haven't created 100 meals of value, and intend to work to produce the value of those 100 meals later, and pay a fee (the interest rate) for eating my meals before i produced for them.
Net destruction/consumption, BEFORE actually producing its equivalent.
ie. a net loss, that is only promised to be returned in the future.
Clear, thank you! Very useful
That’s not always true, especially today where there is an incentive to use credit cards (cash back) even if you have the cash (value created) to pay for the goods and services in the present.
I understand the idea you’re trying to get across, which is that there is a risk of default when lending/borrowing. Describing consumption as destruction can confuse people. They are different things.
Is'nt the *incentive to use* credit cards just a lower true interest rate or a longer payback window?
There are different incentives, but the most obvious one imo is cashback and other perks, especially when you have the money and don’t need the credit.
I see - just use the card, collect the cash back, then always pay it off at the end of the month? Then this isnt actual credit - never pay interest, correct
It’s still credit, but yes, ideally you pay it off before the interest is charged.
But consumption is the process of destruction, even if balanced properly. It is the “using up” of goods as opposed to the production of new goods. What is inaccurate about that in your thinking?
It’s not tho. Setting a house on fire is destroying the house. Consuming the house by living it is not destruction.
Destruction implies that the good is rendered unable to provide value to the owner. I can use (consume) a house for a decade and then sell it to someone else that can continue to consume it. This is not true if I destroy the house.
Maybe this is more so the case for perishable goods like food, but even then I would draw a distinction. When milk or butter is recalled by Costco and they have to destroy the product, this is not the same as people consuming the milk or butter. Destruction is wasted or lost value while consumption is delivers value and fulfills a human need/want.
Aren’t all homes depreciating from the moment they are built? Doesn’t living in a home cause some of it to wear and break down faster?
I can’t think of anything created that ultimately doesn’t have an expiration date.
Sure it’s over longer time scales than a fire but it seems the principle seems the same.
Yes things get worn out and require maintenance. That is different from destroying a good in which case value is not derived. Value is extracted from consumption. The same is not true about destruction.
Scrapping a pair of shoes at the factory because they didn’t meet quality controls is not the same as someone using the shoes for 2 years and deriving value from it, even though at the end of the 2 years, they both will end in the same landfill.
The principle is the same, but I think it’s worthwhile to point out that in one instance value is derived and in the other it is not. Especially since a lot of people won’t get there on their own.
Deflation is bad for governments and good for savers. If only there was a good savings tool….
Ideally neither. No one should be in charge or rewarding one or the other.
Deflation is only bad for debtors if the way in which they used the debt yields less than the rate of deflation.
Not trying to be annoying, but too many people memorize things instead of understanding concepts from first principles.
Savings are naturally, not artificially rewarded, through simple sound money. And you absolutely want that as the normal way of things through natural price deflation or there is no growth. Creation must always have a greater incentive to be life aligned.
It's like asking if thriving or death should be incentivized, and then saying "we shouldn't reward either, we should stay stagnant and simply survive."
The problem is stagnancy is the same as death. Life is a game of compounding growth.
Not disputing that. If it’s naturally rewarded then it doesn’t need us people to reward it.
Thriving is the reward. We don’t need government or anyone else rewarding positive outcomes. The outcome is the reward.
I agree, my post wasn't suggesting we should artificially reward savings. It's about the fact that we are artificially rewarding resource destruction, instead of letting sound money naturally reward its creation.
Inflation(deflation) is neither good or bad for savers/debtors.
A change in the rate of inflation(deflation) is.
Inflation or deflation can be priced in when making a loan, in a way that both sides agree to.
It's when the rate of inflation or deflation unexpectedly changes in the future that one side benefits over the other.
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.
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?
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.
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.
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.
As nostr:nprofile1qqsg86qcm7lve6jkkr64z4mt8lfe57jsu8vpty6r2qpk37sgtnxevjcpz4mhxue69uhkummnw3ex2mrfw3jhxtn0wfnsz9rhwden5te0wfjkccte9ehx7um5wghxyecpr3mhxue69uhkummnw3ezucnfw33k76twv4ezuum0vd5kzmqug4hxr says.
