Thursday, April 12, 2012

Holding that thought

Just came across this old comment from Clonal:

You said,

the burden of debt declines when there is inflation

That is true only if I do not take on more debt with time, and my income keeps up with inflation

Absolutely true, and extremely important. I have come to rely on this thought more and more in the months since I read it.


Clonal said...

I think the rest of my propositions in that thread were "on the money" as well.

The Arthurian said...

I still have trouble with the inflation-adjustment of debt. Been working on that theme lately, which is how I rediscovered your statement.

With more and more people these days seeming to support the use of inflation as a tool to "erode" debt and boost the economy, it seems all the more important to point out, as you said, that if debt continues to grow or if wages do not keep pace with inflation, this solution is unlikely to succeed.

Greg said...

Yes its amazing how its a given with these guys that inflation will just make the debt problem better and the borrowers will love it while the savers will hate it.

I think their problem is that they still see public debt and private debt as fundamentally the same (in respect to the taxpayer)

Yes inflation can make it look like the govt is having an easier time of paying down their debts (provided they dont raise interest rates too) but thats because nominal GDP will rise and so the debt to GDP ratio will fall (arent fractions fun!!). But as you so aptly point out this same environment does not necessarily translate to higher wages for the people in debt to banks...... the workers.

A rising GDP does not make my "personal debt to GDP ratio fall" . Only a rising income with no concomitant rise in indebtedness does that, and with monetarists fixated on spurring banks to lend, its a cinch, with our present geniuses in charge, that the only way we get more economic activity is WITH MORE PERSONAL DEBT. Totally self defeating.

Monetarists love to say they "heart" Milton Friedman but their actions are more like Charles Ponzi.

The Arthurian said...

Hi Greg, I like that Friedman/Ponzi thing.

Funny, when I found Clonal's comment I had to re-present it. But in my mind I had been attributing the idea to you. (I considered saying that in the post, actually.) I think if I looked long enough I would find an old comment from you on the topic.

No, I still remember it. You said it isn't inflation if prices go up and wages don't, then it's a cost of living problem rather than inflation.

Greg said...

That does sound like something Ive thought, so I probably did say it.

Its always interesting to me when someone remembers something I say because often times its the things that I think are the most profound that no one even comments on or notices but some of my off the cuff thoughts get remembered. You've done that to me more than once.

You have a great mind that way Art. You retain stuff that is fitting to your narrative and you get it from all kinds of places. Its a gift really.