Inflation is bad, but...

[Kurt_and_Hunter]

High inflation is BAD. Seriously bad. It murders every asset class... disasterous. I remeber the late 1970s well and it really sucked!

The only thing in the world more destructive than inflation is deflation. Real depression stuff.

But one thing that would follow from a spurt of inflation is that it would repair every upside-down fixed-rate mortgage in short order. The mortgage lenders would get killed to the benefit of home-owners.

The point is this... say a sandwich costs $3.00 and your house costs $200,000. With terrible inflation the sandwich goes to $6 and your house goes to $400,000. You are no "richer" because your house is worth just as many sandwiches as it was before.

But you only owe the bank $200,000, no matter how many sandwiches that equals.

Because inflation is so bad it would merely shift the crisis point from housing to something else. But at some point as the global economy rolls off the table we might get to the point where everyone throws in the towel and says, "Inflation is better than deflation... just go nuts creating money and worry about reining in inflation later." (We are pumping astonishing liquidity into the markets right now, of course. I am talking about even wilder infusions.)

(Like the doctor in the joke who says, "Your cold has turned into pneumonia, which is fortunate. We know how to treat pneumonia.")

"Helicopter Ben" Bernanke got his nickname from an insightful paper he wrote noting that whatever kills us, it cannot be a simple lack of liquidity because in the last extreme the government can print money and drop it from helicopters. That has its own bad consequences and would spark crisis's in different directions, of course, but it is a point worth remembering.

[nebenaube]

1. except that

no one is getting raises around here...

[mainegreen]

2. The increase in other prices will more than compensate for the lesser amount you owe on your house.

Your income will not keep up with hyper inflation. And eventually even with printers running full steam you will not be able to withdraw enough cash to buy a loaf of bread.

With inflation, in the end your effective income goes to zero. Same as deflation.
Or so it seems to me.

[Kurt_and_Hunter]

6. In a true hyper inflation you are correct

Inflation is terrible. It degrades every asset class, and I don't mean to minimize it.

Just noting that inflation can always be induced unilaterally by governments.

It's not a very useful super-power, but in truly crazy economic times the world's financial institutions will be looking at every tool they have, even the dangerous ones.

[Winterblues]

3. If inflation is up that means so are interest rates

How does that effect our National Debt Expense? If we expect some social justice in America we must have resources. High interest would destroy any ability we might have to affect change in America..It is almost as if it were planned that way..:think:

[ProdigalJunkMail]

4. in this economy i would worry about

DEFLATION...cause i think that is where we are headed

sP

[JHB]

5. Ahhh. So that's why Wall Street has a heliport.

Too bad I work somewhere else, so I can't hang around for the money drop.

:sarcasm: