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Discussions; Public Archive / Re: PS
« Last post by Dale Eastman on April 01, 2024, 05:44:58 PM »Quote from: 1 April @ 1838
//If I stuffed $4000 worth of Federal Reserve Notes in my mattress ten years ago, why are they not worth as much today as when I earned them?//
That’s called inflation, and it doesn’t matter whether it’s federal reserve notes or deposit account balances.
Some inflation is a desirable thing, as long as it’s moderate and stable.
There is no such thing as money which will never vary in value.
If money appreciates in value, then it reduces the value of every good and service, and of labor, over time.
So if money appreciated in value, here’s an example of what would happen:
If deflation were 6%, then the value of a dollar would double in ten years.
Let’s say you buy a house for $100,000. In 12 years it would be worth only $50,000.
But your mortgage on the house is for a fixed percentage rate. Let’s say that it takes you a week of labor, now, to pay your mortgage. In 12 years, it would take you two weeks to pay that mortgage every month, because you have to pay the same number of dollars every month, but the value of the dollars has doubled.
The bank is making out like a bandit, and your mortgage payment goes up, in real terms, every month.
With deflation (an appreciating dollar), you have to pay back your loan with dollars that are more valuable than the dollars you borrowed.
With inflation, you are paying your loan back with dollars that are worth less than the dollars you borrowed.
Inflation encourages investment.
Under deflation, hoarding cash is the best investment, which discourages investment in everything else.
This is why deflation is associated with depressions, and inflation is associated with growing economies.
Since we have to choose between inflation and deflation, we choose inflation, for obvious reasons.
Quote from: 1 April @ 1839
Dale, never wait to check that stuff before taking the opportunity to insult people.