Submitted by:
cdhop

---

---

Subscribe to this Author

---

Paste this code into your site to promote this story!
<a href="http://www.breakthematrix.com/Economy/Something-my-professor-once-told-me" onClick="document.images["breakTheMatrix"].src='http://www.breakthematrix.com/badge/badge.php?cid=8916';return false"><img name="breakTheMatrix" src="http://www.breakthematrix.com/badge/badge.php?cid=8916" border="0" /></a>

While pursuing my degree in Computer Information Systems (A.S. 1999), I took two economics courses (Micro and Macro). Outside my major, these two courses were the most interesting classes I have ever taken in college.

During a discussion in my Macroeconomics Course, my professor made the following statement, "If you are in debt, inflation is a beautiful thing". My first reaction was 'Wow!', but upon further review, I think he was/is onto something.

As most people know, when the money is being inflated, prices go up, and eventually so do wages (but never quite as much as prices), but a loan/mortgage is fixed (or used to be) at a nominal rate/amount. So they will not keep pace during an inflationary period. Which means eventually, you will need a smaller portion of your income to make your payments on the debt.

For example, say you bought a house in 1985 for $50 000 dollars, and say that your monthly payments are around $500 a month for a thirty-year mortgage. Back then, $500 was about half your income. As time goes on however, inflation occurs and prices and wages creep upwards while your house payment stays at the same nominal rate of $500 a month. Now your house payment is maybe a fourth (or less) part of your monthly income.

So there is a silver-lining with the dark cloud of inflation. So if you are in debt, bring on the inflation!

But what happens if you are trying to save for the future?

Well as long as your interest rate is beating the rate of inflation (And we all know that we can trust government data), then at least you will break even. But if you cannot grow your money enough to keep up with inflation, then inflation becomes a thief which robs you of the value you have earned.

Inflation is usually a characteristic of a government out of control (or a least at war, but I repeat myself). The loss of real value of a debt, or savings smells of something fundamentally dishonest. Even if it works to your 'benefit' it hurts someone else. But in our selfish society, who cares about the other person? Until you happen to be the other person.

There are many problems in our society (war, poverty, etc), but our inflationary monetary policy gets a seat on the front row of problems, because it serves to enable so many of the others.

Created 32 weeks 2 days ago