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Comment by standardUser | Hacker News Reader

Inflation reduces the value of debt and an era of increased inflation stands to benefit a lot of households. Of course, it helps if wages go up alongside prices, and they have. But even without wage increases, the value of debt lost to inflation is likely worth more than the value of salary lost to inflation for many households.

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> Inflation reduces the value of debt and an era of increased inflation stands to benefit a lot of households.

Maybe. The policy responses to inflation are to increase supply and/or raise interest rates. Both of those put downward pressure on housing prices. So, inflation devalues the debt you owe (good for household) but also devalues the underlying asset (bad for household).

In order for young people to have any chance at the same quality of life of their parents, the "real" value of housing needs to come down to at least 50% of the current value. The only way to accomplish this without wiping out those with mortgages is to have a large spike of inflation. It's painful, but likely necessary.

> The only way to accomplish this without wiping out those with mortgages is to have a large spike of inflation.

This doesn't make much sense when rent/imputed rent are primary drivers of inflation.

We've had significant house price inflation for years due to insufficient supply. I want CPI to increase similarly, along with wages. If housing prices stay the same as today (in dollars) the house buying power of a young person will be much higher after the wage inflation. And because the dollar price of the house doesn't drop, today's mortgage holders won't find themselves underwater. Seems to me like the best we can do for both groups given the circumstances.

To make this happen we'd have to build new homes like crazy while keeping the interest rates low.

Wait until the banks raise interest payments to compensate. They're going to make their money back somehow. You can't game economics like that. There's always a cost.

True, but that's a problem for future debtors, and those who gamble with variable interest rates.

As usual it benefits only those who hold property and not the people at the bottom.

How does inflation help debt become more serviceable if incomes don't go up to match?

If a person's $100k salary loses 20% of its value, but their $400k in mortgage and student loans also lose 20% of their value, it will be years before the lost value from their salary outweighs their 'gain' from the reduced value of their debt. They'll then have opportunities to increase their income, usually with the help of rising wages that accompany inflation, but that reduction in the value of their debt is permanent.

There's not a lot of scenarios where inflation doesn't push wages up. At some point workers demand and receive an inflationary match.

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