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Comment by marricks | Hacker News Reader

Inflation is a good thing for people with a lot of debt but not a lot of money. Think of the millions of student debt borrowers. Even if student debt isn't cancelled, it may get effectively cancelled one way or another.

Which just goes to show, if WSJ or Bloomberg say something is bad, it may not actually be bad for you. Let's just hope the pressure stays up so wages keep on increasing.

EDIT:

I'd like to add, wage growth is outpacing inflation[1]. So those middle class family's with mortgages, lower middle class folks still with student debt, poor folks with credit card debt. This is a GOOD THING.

If you want to say wealthy people have more debts, sure in dollar amounts. But I bet dollars to donuts they have way more assets in stock than in their million dollar home mortgages or w/e.

[1] https://tradingeconomics.com/united-states/wage-growth

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Believe it or not, but wealthy people have more debt relative to income than the poor. For instance, I have a mortgage that is several multiples above my annual income. Most other wealthy people also have debt because it makes sense due to low rates and good credit. The poor often have a tough time getting credit. If you're not making a lot of money it's tough to get debt at multiples of your annual income. That's why payday lenders are so popular (ultra short term high interest rate loans)

It also doesn't help if your income doesn't go up. You end up just paying more for everything. And the poor spend a lot higher percentage of their income on every day purchases that are being impacted.

So on net I think the poor are a lot worse off with high inflation.

OP didn't necessarily said the poor are better off than the wealthy. The broader point is that if you are in favor of debt forgiveness.. well, this is certainly one way to get it done.

Income is increasing faster than inflation, so it is helping poor people more than it hurts and easing their debts.

Also, I am not considering upper middle class wealthy. Wealthy is upper 1% who control most of our wealth.

It's important to make a distinction here between someone who is wealthy and someone who has high income. I think the people who this applies to are more in the bucket of high earner. E.g. take a typical "high earner" tech worker who brings in $500k p.a. total, but lives in an expensive Californian town. They may have a $2mln mortgage to service and high living expenses. Their debt to income ratio is high, but they can afford it (for a time). At the same time, this person is not wealthy. They need the high cash flow to service their debt load and their net worth may even close to zero (taking the debt into account).

There are many definitions of what is a wealthy person, but in my book it is someone with a net worth >$10mln and a low debt loading. Assuming their holdings are in a well diversified portfolio generating 5% net of inflation, they can likely maintain their lifestyle while their wealth will still continue to grow and they are not at risk of being wiped out by income loss or small drawdowns. E.g. someone who has assets worth $100mln but $90mln debt is very highly leveraged and could quickly find themselves being forced to liquidate assets in case they experience just a 10% drawdown.

A wealthy person will indeed often use debt as a leverage vehicle or simply to make a purchase without having to liquidate their holdings, but the debt will still mostly be a small portion of their assets and often also a relatively small portion of the appreciation of their wealth.

> And the poor spend a lot higher percentage of their income on every day purchases that are being impacted.

The wages of the poor go up with inflation.

> I have a mortgage that is several multiples above my annual income. Most other wealthy people also have debt because it makes sense due to low rates and good credit. The poor often have a tough time getting credit. If you're not making a lot of money it's tough to get debt at multiples of your annual income.

That's why family annihilators are dominated by middle-class dads who lost their jobs and couldn't find another. Middle-class people can accumulate an ungodly amount of debt before the runway runs out.

> Inflation is a good thing for people with a lot of debt but not a lot of money.

The counter to this is inflation is painful to people living on savings or fixed incomes. And the politics here are brutal - young people whom this benefits don't vote, older people whom this hurts do.

> The counter to this is inflation is painful to people living on savings or fixed incomes.

The last generation that generally saw the ability to do any of this are the Baby Boomers, and they're a generation that is half-dying and half-broke. Once the Xers with no savings and no pensions start losing the ability to work, the calculus changes. They're 45-60 years old now.

The material view of people who are living on savings and fixed incomes is the people who are wealthy enough not to have to work. That category will soon be dwarfed by the people who need universal health care to stay alive and the people who depend on inadequate social security payments.

Sucks for anyone retired - anyone who has saved over the years - anyone who wants to buy a house, or buy a TV.

And it has a historical track record of getting out of control, and wiping out nation states.

Not arguing that inflation doesn't have it's upsides. But it has some serious serious downsides.

It depends. If you're invested in the stock market, last year was very good for being retired. The S&P 500 was up 27%. (Most retirees will have invested more conservatively, but still.)

It's not good for being retired without having much retirement savings or not investing it, though.

It also works out _sort of_ well for homeowners - at this rate, my house payment is going to end up being a minor inconvenience instead of my largest fixed payment. Of course, I'll still have to pay property taxes and insurance on the newly inflated value of the house.

> Of course, I'll still have to pay property taxes and insurance on the newly inflated value of the house

Luckily mortgage payments are the larger than that chunk :D

For now, anyway. My property taxes are currently just over 50% of my mortgage payment, and I expect them to go up 10% (maximum allowed by law) again next year.

High interest rates tend to depress borrowers’ ability to borrow (being constrained by DTI ratios), so house values tend to fall from interest rate increases in isolation (though rise with general inflation, so the combined effect is harder to predict).

It’s generally good for mortgage borrowers who don’t intend to sell.

About 45% of my housing expenses is expected maintenance, taxes, and HOA dues, all of which I expect to track inflation.

as long as your income rises that will be true

the advantage gets priced into desirable markets. If interest rates go up, house prices go down. Why? because people cannot afford to mortgage as much when they pay more interest per dollar borrowed.

inflation (or the expectation for ones income to keep up with inflation) incentivizes spending more on houses (so long as the mortgage APR is below inflation) because the inflation is eating the debt YoY. So you may as well buy a lot of house.

That is until they raise the rates, or your income doesn't rise, etc.

Then see 2008.

> I'd like to add, wage growth is outpacing inflation[1]. So those middle class family's with mortgages, lower middle class folks still with student debt, poor folks with credit card debt. This is a GOOD THING.

Median real wages have been declining. https://fred.stlouisfed.org/series/LES1252881600Q

Anyone with debt gets a win when inflation is high, as it basically shrinks their debt.

Its a good thing in the short term for a specific group of people, but generally not good at all for the macro-economy or society in the long run.

You see the consequences of low interest rates in other ways, ie housing prices.

> Anyone with debt gets a win when inflation is high, as it basically shrinks their debt.

There should be a few caveats - the interest rate has to be fixed (that's not always the case at all) and employment and wages need to go up as well (also not a given).

> Inflation is a good thing for people with a lot of debt

Iff their income increases faster than their interest rate.

> I'd like to add, wage growth is outpacing inflation

Only applicable if it refers to median income (not mean income.)

The problem with the stats is that it could contain some major hidden factors; one is if the median income increased because people with lower income dropped out of the workforce. Another is increased income inequality. It could also be if wage growth was front-loaded with the pandemic and will peter out while inflation will continue unabated. And obviously median is much better than mean for a pareto distribution. Some of this might be easier to spot by looking at the quintiles over time.

People are being successfully brainwashed into believing high inflation will benefit them, either by increased wages or proxy debt forgiveness. It is utter madness.

I suspect the average person is seeing price increases beyond their pay so inflationary policy will become increasingly unpopular.

Mean income is a statistic skewed towards the wealthy, so that just re-enforces the point.

Is student debt with variable interest rates or just a fixed rate?

Because variable interest rates can get quite high due to inflation.

Fixed. https://studentaid.gov/understand-aid/types/loans/interest-r...

Wealthy people have access to lower interest rates, poorer people have to pay a risk premium. The advantage to the wealthy is exacerbated the closer risk free interest rates go to zero. Lower interest rates is hugely advantageous to the wealthy.

Never mind that when you reach a certain level of wealth, capital is your main source of more wealth. So capital becoming cheaper just goes straight to your bottom line.

I don't support low interest rates as I think it's a bad policy that hurts the low income earners and society at large. However, I did predict and intentionally benefit from low interest rate policies to the point that I can now be considered wealthy. This has led to their rather weird situation where my in online disagreements I'm arguing against my economic interests.

> Inflation is a good thing for people with a lot of debt but not a lot of money.

I think it's good for people that can hop from job to job demanding higher wages as inflation comes. But if you're not in a position to do that, how is inflation good?

interest rates will just rise to cancel the debt canceling effect out.

ultimately it hurts those who don't have a cash buffer for weathering the lag between price increases and wage increases.

> I'd like to add, wage growth is outpacing inflation[1]

This is based on a few months measurement yes? We have no idea what comes next over the coming 2 decades.

sucks for people like me with no debts though.

Take out some debt. I’m serious. That “free” money is there for you to take risks and invest with.

Hyperinflation begins when everyone decides this is wise and starts taking too many loans.

Until interest rates raise to balance out demand for debt.

invest where though.

Loan it to someone else at 0% interest.

In the massive, bubble, err, stock market rally

Oops, if you did that recently, you probably lost a lot of money.

I was thinking about buying a truck recently and I got this bit of advice: "a loan is a hedge against inflation". More specifically, a fixed interest rate loan is a hedge against inflation.

You are borrowing at an initial dollar value of A (in terms of inflation), and servicing your debt at a fixed rate, for a fixed time. During that time the value of the dollar decreases, and you now have a value of <<<A.

This presumes that your income/cashflow will stay the same or increase slightly during the borrowing period.

I think that's bad advise, or at least incomplete, if the money that was going to buy a car is just sitting in a savings account you're guaranteed to be poorer since inflation will still hit your savings account plus you are paying interest on the loan.

And with a 0% loan it us even better

You can get very cheap car loan offers right now which might be interesting. 0 or 0.9% for 3-4 years. Given 3-7% inflation it’s a nice discount if you have the cash to take advantage of better returns

It's only a discount if you get a YoY raise equivalent to inflation. Otherwise you just lose even more money.

I'm not sure the psychic burden of debt is always worth missing the upside of inflation. I irrationally pay down low-interest loans even though it mathematically makes sense to invest those payments in something higher yielding. However paying off a loan to completion feels fantastic.

With no debts and no job, definitely. You're living off savings that are becoming less valuable.

What about all the other things they need to buy with their not a lot of money which have also gone up in price (say food)

It’s a destruction of stored value. It’s never good even if people who took out unwise debts get their asses saved.

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