Tuesday, April 5, 2016

"sticky down"

Someone who bought a house in the 1970s well understands that inflation erodes debt: My rising income from inflation meant my unchanging monthly mortgage payment took a shrinking cut of my income.

Deflation has the opposite effect: My unchanging debt consumes more of my shrinking income.

That's one good reason wages are "sticky down". (Assuming that the people who say wages are sticky down are correct.)  (Wages and other prices, probably.)

If that's true, then inflation helps debtors and deflation doesn't.

So I'm thinking that the more debt there is in an economy, the stronger is the stickiness of the sticky down. Nobody wants to accept a wage cut. But the more debt we have, the more important it becomes to avoid the wage cut.

I don't have a graph to show that. (This post is just theory.)

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