Because I need to eat today. I need a place to live today. I need to be able to drive to work today. Is my money going to be twice as valuable tomorrow? No, it would be twice as valuable in 100 years you say. I don't have time to wait, I'll be dead by then.
You can't grow your economy if everyone is only spending on just the basics. Just ask the Japanese who have been struggling with that for the last 30 years. You can view inflation as an incentive to spend money now, because they're less valuable tomorrow. Economic activity requires spending, whether that is though consumption or investments. Something has to turn the wheels around.
Money is not inherently valuable. If the economy produces less or even shrinks, you cannot deflate the value of money without destroying some of its supply. You can still print more money while having its value deflate if the economy is growing fast enough.
Agreed. Currencies is only valuable as a means of exchange. They're a poor way to store wealth. Has been since everybody left the gold/silver standard.
Germany is one of the most successful economies in both Europe and the world. It seems strange to suggest their economic ideas are foolish when they're as successful as they are.
Ever wonder why? Because the rest of Europe is paying them, and they're keeping southern Europe in effective debt bondage. That's why Germany is successful, because they have the capital everybody wants, due to being a nation of savers. I'll have to add my own country is no better in that regard. We're paying -0.7% interest on cash in the bank, and there has been talk of lowering that further to -0.8% because the Krone is way too strong against the Euro.
I also happen to know an even more successful country. My own. Where people don't have to work two or three jobs to make ends meet. That's the unfortunate reality, especially in the old East Germany.
I don't just owe $100 next year though or magically owe only $98. I owe $100 (the principal) + whatever interest has accrued on that loan. The interest rate that I can borrow at for anything is higher than the rate of inflation. Suppose it's 5%. Now I owe $105 and although inflation means that's less than $105 used to be worth (a little less than $103 using the same 2% inflation), it's still not less than I previously owed. If there were no inflation, the interest rate would be lower, maybe only 3%. If inflation were higher, so would the interest rate. The bank still needs to make a profit to stay in business.
Okay, maybe I oversimplified a bit. Guilty as charged.
You know what the interest rate was here in the early 80's? 18%. The
effective rate however was close to 0, due to inflation. Banks will always find a way to make money. Here the interest rate is currently negative on
Realkredit, so now they just make money on obligatory "contributions" to the
Kreditselskab...
It's funny that you bring up mortgages as an example as well. Houses are deflationary relative to the U.S. dollar. It's obvious that this is far more complicated in reality and that it isn't houses themselves being inherently more valuable than anything else and for no other reason, but other factors such as location and difficulty of building additional supply where there is the most demand. We even talk about it being such a good longterm investment since the value goes up and you can sell it later because it's worth much more than you paid for it initially even when accounting for inflation.
As I said, Danish
Realkredit and general housing market works a bit differently. I'm really not that familiar with how things work in the US.
Here you shouldn't view housing as an investment as such, but as a store of wealth. You may get lucky it's worth more then you paid for it when you sell it. Especially in the larger cities (Copenhagen in particular has had a real boom). But again, you may get unlucky and end up with a huge debt. Of course longer term mean trending towards the former, but there are a lot of places where prices haven't even recovered to 2007-levels yet.