If you have a mortgage, it is likely that your net worth is negative. In such a case, inflation greatly helps your networth.
Credit card debt, mortgages, student loans, payday loans... this is the reality of the lower and middle class. If you're making less than $45,000 / year, you're likely in debt in the US.
At which point, inflation helps greatly, by reducing the value of your debt. A (former) student who has $100,000 in debt isn't "losing money" to inflation... the student is instead "losing debt" to inflation.
My point was that it's not written in stone anywhere that the middle class is a debtors class. People didn't used to have credit cards and car loans. Some would have mortgages, but nowhere near what we have today, and it wasn't about investing in the "value" of the home, given that there is no such thing, besides it being a roof over your head.
This system in which the middle class is by default considered the debtor class is a result of decades of manipulation.
And the middle class is free to live without credit cards, mortgages, and student loans.
Its hard to call it "manipulation"... although I'd argue it is widespread ignorance that has caused this problem. It is clear to me that swaths of people do not understand the concept of debt until it is too late. There is clearly a problem in the education system.
Too many people are getting too much into debt. Not on someone else's choice, but on their own choice.
Right, you really expect someone to pay for an 80 - 150K degree all on their own without student loans? That's usually the catalyst there. Once you graduate college, then you need to start paying off that debt. You need to get a job, pronto, and that often means buying a car to drive there.
Nope. I expect less people to get an $80,000 degree. I got a degree in engineering at a State University for $30,000. I have friends who got cheaper degrees by going to community college for two years.
There is also the option of not getting a degree at all, one which is rarely discussed. It turns out that the US Job can't subsume all of the college-level jobs anyway. A degree in Library Science is surely hard stuff, but its relevance in the modern workforce is questionable.
I dare say, its better to just get a job out of High School and start climbing the corporate ladder at Target or Costco, than to waste 4 years of your life on a dead-end degree. (And no offense to "dead-end degrees" either. Lawyers for instance, are contracting. They're currently a dead-end degree, despite the extreme difficulty and prestige associated with the field. But it is surprisingly difficult to get a job now as a fresh Law Grad IIRC).
Nevertheless, those who are $100,000+ in debt benefit from inflation. There are plenty of people in this unfortunate situation and the country should do more to support them. (the counrty should have done more to prevent them from getting into that situation... but that is another story)
Would that former student not also be losing some of his/her ability to pay off said debt? In other words, if his/her salary is not increasing to match inflation, isn't it just a wash?
How does (steady, predictable) inflation help you as a debtor? If the banks expect to lose, say, 3% to inflation, isn't the logical action to increase the nominal interest rate to maintain the same real rate?
I can understand why unexpected inflation would help debtors, but that's not what people argue for.
Logical, yes. But in practice, no. Interest rates have fallen while inflation has remained steady.
Consider that 20 years ago in 1994, the Mortgage rate was 9.17%, while today Mortgage rates are roughly 3.9%... it is clear that the market for interest rates is rather more complicated than you mention.
Second, you're right. It really doesn't matter how high or low inflation is, if it is consistent... then it is something the market will easily take into account.
So a steady rate of inflation is perfectly fair to both sides. Which is why the Federal Reserve wants to peg inflation at 3%.
I would wager that having a mortgage is positively correlated with net worth, and that credit card debt, student loans and surely payday loans(!!) are negatively correlated with net worth.
But with the number of "underwater" homes, subprime mortgages, and so forth that were handed out through the early 2000s, it is clear to me that mortgage holders probably have negative net worth, especially if they were lower or middle class families.
People were buying homes they couldn't afford. In these cases, inflating their debt away is only a benefit.
Looking at various real estate indices over the years, it looks to me like we've recovered through much of the crash, and the FTSE NAREIT price value was higher in 2006 than now, but not in any other year.
Combining that with the fact that many mortgage holders would have bought before 2003, suggests to me that the overwhelming majority of mortgage holders are not underwater, which takes nothing away from the pain of those who are, but numerically, they are a minority. Perhaps half of all mortgages relate to purchases (original purchase date, not most recent finance date) prior to 2003, and I'd wager that well more than half (probably 75+%) of purchases since then have mortgages that are not underwater.
Sure, mortgage holders from lower class families are more likely to have a negative net worth. But that's almost the definition of lower class, not because they're a mortgage holder. Lower class families with last names starting with "S" are also more likely to have negative net worth than average families; has nothing to do with their name...
Totally agree that inflation is the friend of a fixed coupon debtor. I'd be hard pressed to decide to pay off my house even if I had the free cash to do so. It will be much cheaper to pay it off with massively devalued 2024 and 2034 dollars.
Only about 13% of mortgages are underwater[1], so it's definitely not true that mortgage holders probably have a negative net worth. It's a common situation, but far from being the situation a majority of mortgage holders are in.
If you have a mortgage, it is likely that your net worth is negative. In such a case, inflation greatly helps your networth.
Credit card debt, mortgages, student loans, payday loans... this is the reality of the lower and middle class. If you're making less than $45,000 / year, you're likely in debt in the US.
At which point, inflation helps greatly, by reducing the value of your debt. A (former) student who has $100,000 in debt isn't "losing money" to inflation... the student is instead "losing debt" to inflation.