Our media cycle has barraged us with reports of the Evil Inflation Monster.
Inflation is where each dollar becomes worth less over time. If you lend a dollar to me today at 5 percent interest and no inflation, you will receive $1.05 in value when the loan is repaid. If there is 5 percent inflation, the value of the repayment is precisely $1. If inflation over the term is 10 percent, then I only pay a value of 95 cents.
If we believe in a well-functioning market economy, then markets will adjust all prices and wages to their appropriate “inflation adjusted” levels, and there is no net harm. The losers are those who have made long-term commitments assuming no/low inflation. My largest single long-term contract is a home mortgage. Today, the inflation rate exceeds my mortgage rate. That means that the effective interest rate on my loan is negative. The losers are the lenders.
Banks know that going to Congress begging for another bailout will likely fail. Imagine our representatives telling us that the value you owe Wall Street cannot be allowed to decrease because of market forces.
The tools of the wealthy will scream about inflation with no distinction between winners (homebuyers) and losers (banks).
