Topic: Deflation vs Inflation (Read 478 times)
Old thread however, I am at the same point of question. Instead making a new thread I thought I'd re-initiate this topic. Can someone explain or offer anything else to the subject at hand?
Hi All,
I've been thinking somewhat lately about this deflationary currency concept and whether or not it's really a good thing versus a crypto-based currency with a low fixed rate of perpetual inflation say about 2 or 3% annually. (Like the banks attempt to keep fiats running on)
The thought I came across was this;
Let's say a given Crypto, doesn't matter which, becomes main stream successful and is used globally as a primary means of currency exchange.
Let's say further then, an ordinary guy (or gal), who works an ordinary job, say as a Taxi Driver, or a Warehouse assistant... whatever, is paid in this uber-successful crypto for salary, and decides to take out a mortgage denominated in this crypto to purchase a home.
Let's say the mortgage value is for 1000 units over a period of 25 years, 40 units to be paid annually.
And further the current wages of the worker are 300 units per year.
At the beginning of the term, everything is fine, the worker is only in debt equal to 3x their annual salary, and the home they have purchased is worth equal to the amount paid ; 1000 units.
But then over the course of the following ten years imagine if the currency deflates by a factor of 5.
So far the worker has paid off 400 of the 1000 units, meaning the debt stands at 600 units.
Assuming the house is still as relatively valuable as it was 10 years previously, is now worth only 200 units.
The workers salary assuming they stayed in the same job and are being paid the same relative amount for their
work is now just 60 units.
There comes a point with such rapid deflation, that the worker simply cannot pay off the remaining debt which is many times more than the house is worth and many times greater than an annual salary.
So the concept of a mortgage doesn't work, and if the concept is changed so that the repayments decline in scale slightly behind the deflationary curve, profit for the mortgage lender can be made in relative terms, however after an extended period the lender will always have less actual units than they started with and thus would be very unlikely to be interested in lending in the first place.
So either deflation must be set at a very low pace in a world-dominating crypto, or said crypto needs to be very slightly inflationary and thus a little bit more like classical fiat. (without the centralised banker cartel printing new money like it's going out of fashion to pay for their stupid wars, of course)
I've been thinking somewhat lately about this deflationary currency concept and whether or not it's really a good thing versus a crypto-based currency with a low fixed rate of perpetual inflation say about 2 or 3% annually. (Like the banks attempt to keep fiats running on)
The thought I came across was this;
Let's say a given Crypto, doesn't matter which, becomes main stream successful and is used globally as a primary means of currency exchange.
Let's say further then, an ordinary guy (or gal), who works an ordinary job, say as a Taxi Driver, or a Warehouse assistant... whatever, is paid in this uber-successful crypto for salary, and decides to take out a mortgage denominated in this crypto to purchase a home.
Let's say the mortgage value is for 1000 units over a period of 25 years, 40 units to be paid annually.
And further the current wages of the worker are 300 units per year.
At the beginning of the term, everything is fine, the worker is only in debt equal to 3x their annual salary, and the home they have purchased is worth equal to the amount paid ; 1000 units.
But then over the course of the following ten years imagine if the currency deflates by a factor of 5.
So far the worker has paid off 400 of the 1000 units, meaning the debt stands at 600 units.
Assuming the house is still as relatively valuable as it was 10 years previously, is now worth only 200 units.
The workers salary assuming they stayed in the same job and are being paid the same relative amount for their
work is now just 60 units.
There comes a point with such rapid deflation, that the worker simply cannot pay off the remaining debt which is many times more than the house is worth and many times greater than an annual salary.
So the concept of a mortgage doesn't work, and if the concept is changed so that the repayments decline in scale slightly behind the deflationary curve, profit for the mortgage lender can be made in relative terms, however after an extended period the lender will always have less actual units than they started with and thus would be very unlikely to be interested in lending in the first place.
So either deflation must be set at a very low pace in a world-dominating crypto, or said crypto needs to be very slightly inflationary and thus a little bit more like classical fiat. (without the centralised banker cartel printing new money like it's going out of fashion to pay for their stupid wars, of course)
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