You've stated a bunch of stuff as fact without sources.
> Yes, exactly. This allows wealthy people to borrow money and pay it back with less value.
It lets everyone do so, and as a fraction of net worth, the poor are way disproportionately exposed, and hence benefit. A billionaire with $1B in net worth isn't leveraged to 10B in real estate. Someone worth $10K may easily have $100K in mortgage debt, however.
Why do you say people who have both debt and assets benefit more than those who have just debts? They strictly dont because those assets have to outperform inflation. Debts do not.
> Poor people often don’t have access to these extremely low interest rates because of structural inequalities and credit requirements (and exceptions tend to leave them worse off as well, see the subprime fiasco). Meanwhile the cheap credit bids up the prices of those assets, benefitting the people who have them (wealthy) as opposed to the people buying them (upwardly mobile or aspirational).
That's irrelevant - that is to say, a separate problem - because inflation affects everyone regardless of interest rate equally. Interest rates are set based on likelihood of default.
> Not in aggregate, because the cost of a house increases as people bid for houses with the cheap credit.
Yes, in aggregate, no the cost of houses hasn't increased on an inflation adjusted dollars per square foot basis since the 1970s [1]. Where it has increased on a unit basis it's due to zoning regulation and not inflation.
> Right, and at the end of the day those units represent less value because of the actions of the central bank. Furthermore those actions were intended to have that exact effect. So how are you claiming that business owners are supposed to work in opposition to central bank policy? Clearly if the central bank wants wages to decrease in real terms, and business owners increase them nominally to make them neutral in real terms, this frustrates central bank policy and they will logically just print more money.
No, this is a fundamental misunderstanding. All businesses see their expenses and revenues rise with inflation. If they choose not to adjust their salaries commensurately, they've made a conscious decision to reduce pay a fraction of income.
> The problem is the distorting effect of low interest rates means that what is productive in terms of nominal r.o.i. is not what is productive in real terms, but the market distortions are so pervasive and persistent that people have to chase the nominal returns. This is incredibly destructive to value, society, and community.
Citation for your claim that everyone has access to cheap credit. Are you aware of payday loans? [0]
> and as a fraction of net worth, the poor are way disproportionately exposed, and hence benefit.
Citation needed for your claim that the poor can access these low interest rates.
> A billionaire with $1B in net worth isn't leveraged to 10B in real estate.
Citation needed. Why do you think a person with $11B in assets wouldn’t borrow $10B?
> Someone worth $10K may easily have $100K in mortgage debt, however.
Citation needed. Do you mean someone worth $110k has a $100k mortgage? Or do you mean someone worth -$90k has $10k in assets and liabilities totalling $100k?
> Why do you say people who have both debt and assets benefit more than those who have just debts?
Because inflation causes assets to appreciate in nominal terms (assuming constant real value) and debt to depreciate in real terms.
> They strictly dont because those assets have to outperform inflation. Debts do not.
I’m not sure what you mean by “outperform inflation”
> That's irrelevant - that is to say, a separate problem
It means your theory about poor people benefitting from low interest rates is not true.
> because inflation affects everyone regardless of interest rate equally.
Citation needed.
> Interest rates are set based on likelihood of default.
You know this and yet you continue to assert that poor people benefit as much or more than the wealthy? I guess you think a person with a minimum wage job and no assets is just as likely to default as a billionaire?
> Yes, in aggregate, no the cost of houses hasn't increased on an inflation adjusted dollars per square foot basis since the 1970s
Right, when you adjust for the inflation, it hasn’t increased at all. Which is basically the point. The prices go up because of inflation, people who hold assets sell them for more money, people who earn paychecks get the same amount of dollars but can buy less for it, etc. None of this is controversial except when saying it around the proles who might take offense at the efforts of oligarchs to eat the bottoms out of their paychecks and savings.
> No, this is a fundamental misunderstanding. All businesses see their expenses and revenues rise with inflation.
But not at the same time or at the same rate. After all, if all prices relected inflation at the same time, there would be no point.
> If they choose not to adjust their salaries commensurately, they've made a conscious decision to reduce pay a fraction of income.
No, the bankers are the ones who made the conscious decision. Good rhetorical judo tho.
> [citation needed]
> You've stated a bunch of stuff as fact without sources.
Some of it is basically common knowledge, like poor people not having the collaterall, credit history, or social value required to access the same loans as billionaires. Some of it just seems like fundamental misunderstanding on your part, like your belief that all prices inflate at the same rate.
> Citation for your claim that everyone has access to cheap credit. Are you aware of payday loans?
I have at no point stated that. What I said is that inflation affects all debts equally.
Interest rate on loans is defined on "cost plus" basis, where "cost" is the treasury interest rate, and the "plus" is based on your default risk. However, the "cost" is the same for everyone no matter what.
Inflation isn't even the "cost" term. Inflation reduces the value of the principal of every loan the same amount regardless of who took it out or at what interest rate. The principal. Not the interest.
That knocks out your first 5 or 6 points.
> Do you mean someone worth $110k has a $100k mortgage? Or do you mean someone worth -$90k has $10k in assets and liabilities totalling $100k?
You can get a mortgage with as little as 3% down payment, so yes, I am referring to someone who has a $100K mortgage debt, a $100K house an $10K in other, misc assets like savings or investments. This person is leveraged 10X. I don't know for a fact billionaires don't leverage themselves 10X but I can't fathom why they would unless they're on r/WallStreetBets.
> No, the bankers are the ones who made the conscious decision. Good rhetorical judo tho.
Ok so a business sees their revenues go up 2%, and their costs go up 2%, and during annual comp review they say... "let's set the increase in salaries at 0% even though we know inflation is 2%" -- the bankers did that? Were they on the conference call? That's a lot of calls to schedule!
> Some of it is basically common knowledge, like poor people not having the collaterall, credit history, or social value required to access the same loans as billionaires. Some of it just seems like fundamental misunderstanding on your part, like your belief that all prices inflate at the same rate.
You introduced all of these things, not me, and you did so based on a misunderstanding of my point.
> I have at no point stated that. What I said is that inflation affects all debts equally.
So you do, at least, understand that a person with more debt benefits more than a person with less debt?
> Interest rate on loans is defined on "cost plus" basis, where "cost" is the treasury interest rate, and the "plus" is based on your default risk. However, the "cost" is the same for everyone no matter what.
So you are aware that poor people generally pay a premium for loans, based on their risk of default? And you see how that impacts their access to credit? And how this leads to wealthy people benefitting more?
> You can get a mortgage with as little as 3% down payment, so yes, I am referring to someone who has a $100K mortgage debt, a $100K house an $10K in other, misc assets like savings or investments.
That is the kind of person who may benefit from inflation, depending on their investment choices.
> When the principal decreases by 2% per annum and the rich person pays 2% interest and the poor person pays %600 percent, the rich person gets free credit while the poor person pays ~600% per annum. Surely you can see that this is worse for the poor person, even before factoring in that the rich person gets capital gains from asset inflation while the poor person gets real decrease in wages.
Inflation is a small part of the interest rate calculation. Even if inflation were 0% a rich person would pay 0% and a poor person 598%. You've achieved nothing.
> Surely you can see that this is worse for the poor person, even before factoring in that the rich person gets capital gains from asset inflation while the poor person gets real decrease in wages.
Wages have kept pace with inflation, and capital gains tax is a social/fiscal policy matter for Congress, not for Janet Yellen. Try again.
> So you do, at least, understand that a person with more debt benefits more than a person with less debt?
I believe I explicitly stated it benefits debtors over creditors. Poor folks are leveraged substantially more than rich folks, hence the disproportionate benefit.
Without inflation they'd be assessed the same interest rates, with the same risk premiums, but would not benefit from inflation so this is strictly worse, is it not?
> So you are aware that poor people generally pay a premium for loans, based on their risk of default? And you see how that impacts their access to credit? And how this leads to wealthy people benefitting more?
That has nothing to do with inflation which impacts the principal of issued loans.
> Poor folks are leveraged substantially more than rich folks, hence the disproportionate benefit.
This is false, rich folks have far more debt than poor people, not to mention access to lower prices for loans.
> Without inflation they'd be assessed the same interest rates, with the same risk premiums, but would not benefit from inflation so this is strictly worse, is it not?
You’re right that the rich, who hold vastly greater amounts of debt, would not benefit from the central bank depreciating their liabilities.
> That has nothing to do with inflation which impacts the principal of issued loans.
When the principal decreases by 2% per annum and the rich person pays 2% interest and the poor person oays %600 percent, the rich person gets free credit while the poor person pays ~600% per annum. Surely you can see that this is worse for the poor person, even before factoring in that the rich person gets capital gains from asset inflation while the poor person gets real decrease in wages.
> Yes, exactly. This allows wealthy people to borrow money and pay it back with less value.
It lets everyone do so, and as a fraction of net worth, the poor are way disproportionately exposed, and hence benefit. A billionaire with $1B in net worth isn't leveraged to 10B in real estate. Someone worth $10K may easily have $100K in mortgage debt, however.
Why do you say people who have both debt and assets benefit more than those who have just debts? They strictly dont because those assets have to outperform inflation. Debts do not.
> Poor people often don’t have access to these extremely low interest rates because of structural inequalities and credit requirements (and exceptions tend to leave them worse off as well, see the subprime fiasco). Meanwhile the cheap credit bids up the prices of those assets, benefitting the people who have them (wealthy) as opposed to the people buying them (upwardly mobile or aspirational).
That's irrelevant - that is to say, a separate problem - because inflation affects everyone regardless of interest rate equally. Interest rates are set based on likelihood of default.
> Not in aggregate, because the cost of a house increases as people bid for houses with the cheap credit.
Yes, in aggregate, no the cost of houses hasn't increased on an inflation adjusted dollars per square foot basis since the 1970s [1]. Where it has increased on a unit basis it's due to zoning regulation and not inflation.
> Right, and at the end of the day those units represent less value because of the actions of the central bank. Furthermore those actions were intended to have that exact effect. So how are you claiming that business owners are supposed to work in opposition to central bank policy? Clearly if the central bank wants wages to decrease in real terms, and business owners increase them nominally to make them neutral in real terms, this frustrates central bank policy and they will logically just print more money.
No, this is a fundamental misunderstanding. All businesses see their expenses and revenues rise with inflation. If they choose not to adjust their salaries commensurately, they've made a conscious decision to reduce pay a fraction of income.
> The problem is the distorting effect of low interest rates means that what is productive in terms of nominal r.o.i. is not what is productive in real terms, but the market distortions are so pervasive and persistent that people have to chase the nominal returns. This is incredibly destructive to value, society, and community.
[citation needed]
[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...