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TheCountOfNowhere

The Bbc Inflation Explanation....or "how Can Inflation Be Good For You?"

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http://www.bbc.co.uk/news/business-30778491

Why should borrowers love inflation?

"Anyone with a mortgage or a loan benefits from inflation, as it has the effect of eroding debt. In the 1960s my father bought a house for £11,000. But with inflation peaking at around 13% in the late 70s, his wages were rising fast too - meaning the mortgage repayments were taking an ever smaller share of his income. By contrast, deflation - or falling prices - increases the real value of debts. Not a good place to be."

Errr......I think the person who wrote this is mistaking price inflation with wage inflation. Maybe they assume one follows the other and maybe it does if you work for the BBc.

I knew they'd be on about housing.

So what inflation rate is good?

They say 2.5%.

i say <= 0%

"But whatever the precise level, most do agree that a little dose of inflation is absolutely essential."

Could someone ask them for the details of the study that threw up this "fact" ?

Enjoy your debt.

Edited by TheCountOfNowhere

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Carnage was the the news spouting similar shyte

I heard a BBC reporter's comments that began with the observation that deflation was a boost to the economy as it put money in consumers pockets- then ended with the apocalyptic scenario in which people stop buying almost anything while they wait for prices to come down- this conceptual journey took all of two minutes to play out.

I knew that attention spans at the BBC were short- but this is ridiculous.

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If inflation erodes debt then either lenders are out of pocket or they have to charge higher interest rates (inflation + whatever profit they're getting), so no real meaningful debt erosion.

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I heard a BBC reporter's comments that began with the observation that deflation was a boost to the economy as it put money in consumers pockets- then ended with the apocalyptic scenario in which people stop buying almost anything while they wait for prices to come down- this conceptual journey took all of two minutes to play out.

Like all the ever-cheaper electronics people are buying now because, erm, they'll be cheaper later? If there are things which people are completely happy about putting off then presumably they're not that important in the first place and their production is more about creating tat for the sake of creating tat, and a system that relies on that is gaga anyway. Edited by Riedquat

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If inflation erodes debt then either lenders CREDITORS ( i.e. SAVERS ) are out of pocket or they have to charge higher interest rates (inflation + whatever profit they're getting), so no real meaningful debt erosion.

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If inflation erodes debt then either lenders are out of pocket or they have to charge higher interest rates (inflation + whatever profit they're getting), so no real meaningful debt erosion.

Debt erosion makes room on the balance sheet for new debt to be created. The lenders are rarely out of pocket.

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Debt erosion makes room on the balance sheet for new debt to be created. The lenders are rarely out of pocket.

That'll be keep raking it in with the interest without looking too carefully at the ever-growing house of cards then.

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Deflation is bad, because the rising value of money makes holding money a better bet than productive investment.

On the other hand, the rising value of houses is good because, er, oh, dunno.

There's hypocrisy for you.

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The Radio four 6:15am slot actually had ecomists discussing deflation on this morning. The journalist who does that slot normally gives the idiotic reasoning about the risks of deflation (deferred expenditure) but both economists rejected this. One said it might be true in the case of companies making big investments. The other said that there was little evidence of any link.

There was then a rational discussion about deflation caused by falling demand and that caused by increased supply.

At last someone talking sense about deflation on the Today programme.

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