There are a number of assumptions implicit in that scenario. Let's see if you can identify them. It makes ZERO mention of the wage/inflation comparison and absurdly assumes they are equal. History shows that in times of high inflation (eg 80s/90s) wages failed to keep up with inflation. It also makes ZERO mention of the asset price change over time once again making the infantile assumption that the asset appreciates over time at the same rate as the interest rate. One would have thought the current financial crisis would have made you loathe to quote this garbage. (Yes I know it is a text book - that doesnt stop it from being simplistic or downright wrong). The current American economy has high-ish inflation but at the same time it has plummeting house prices. You dont see anyone boasting about how borrowers are being benefited. And at the same time, wage rises are failing to keep up with inflation and the next year wil be even worse.
And to repeat a basic tenet of borrowing is that you 'lose' if the interest rate exceeds the rate of appreciation of the asset (inflation). Economics is barely a science. Current events are disproving much of their 'theory'. -----Original Message----- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of Michael Madigan Sent: Tuesday, 2 December 2008 9:02 AM To: ProFox Email List Subject: RE: [OT] How to determine if a market has hit THE bottom. You must enjoy sticking your foot in your mouth over and over again. "Wealth effects. Inflation redistributes income between borrowers and lenders. Suppose you borrow $100,000 for a 30-year mortgage at 7% interest, giving you a monthly housepayment of about $665. During the next 30 years, as prices rise, that $665 buys less and less. So as a borrower, the real value of your housepayment declines. Thus a borrower may gain from high inflation. The lender however, receives $665 per month, so the lender loses. If inflation is high enough the $239,400 the lender receives in loan and interest repayment over the next 30 years ($665 x 12 months x 30 years) will be worth LESS in real terms than the $100,000 the borrower receives today. Inflation hurts lenders but benefits borrowers, especially if it is unexpected. So the Wall Street banker is much more worried about inflation than Joe Average with a mortgage and a car payment. " http://www.oswego.edu/~edunne/200ch7.html ************************************************* Barack Obama is not My President http://www.cafepress.com/rightwingmike --- On Mon, 12/1/08, Geoff Flight <[EMAIL PROTECTED]> wrote: > From: Geoff Flight <[EMAIL PROTECTED]> > Subject: RE: [OT] How to determine if a market has hit THE bottom. > To: "'ProFox Email List'" <[email protected]> > Date: Monday, December 1, 2008, 5:20 PM > That is not even close to true. Borrowers are better off if > inflation is > greater then the interest rate on the loan - otherwise they > lose. Same > applies to incomes: if your income rises more than > inflation then you are > ahead and vice versa. Simple mathematics really. > > > -----Original Message----- > From: [EMAIL PROTECTED] > [mailto:[EMAIL PROTECTED] On Behalf > Of Michael Madigan > Sent: Tuesday, 2 December 2008 8:36 AM > To: ProFox Email List > Subject: Re: [OT] How to determine if a market has hit THE > bottom. > > Most incomes go up quicker in inflationary times. > > It is generally recognized that borrowers gain value in > inflationary times > and lenders lose value. > > > > ************************************************* > Barack Obama is not My President > > http://www.cafepress.com/rightwingmike > > > --- On Mon, 12/1/08, Ricardo Aráoz > <[EMAIL PROTECTED]> wrote: > > > From: Ricardo Aráoz <[EMAIL PROTECTED]> > > Subject: Re: [OT] How to determine if a market has hit > THE bottom. > > To: "ProFox Email List" > <[email protected]> > > Date: Monday, December 1, 2008, 5:53 PM > > Kristyne McDaniel wrote: > > > Nicholas, > > > > > > > > >> Ricardo, you need to understand the concept > of > > money. > > >> It is irrelevant whether the rich have their > worth > > in > > >> cash or other instruments. It is still > > "money" and is > > >> directly affected by inflation; everything > they > > buy > > >> including other investment instruments will > go up > > >> in price. > > >> > > > > > > Another feature of inflation is that all of us > with > > mortgages or other loans > > > wind up repaying them in inflated dollars. That > fact > > does even out some of > > > the impact of inflation on both the rich and the > poor, > > although the poor > > > obviously are more severely impacted because of > the > > rise in rent, food, and > > > other goods. > > > > > > > Unless your loans are somehow tied to inflation. > Right? In > > which case > > you will loose big. Because your income will not be > tied to > > inflation. > > > > > > > > > > --- StripMime Report -- processed MIME parts --- > > multipart/alternative > > text/plain (text body -- kept) > > text/html > > --- > > > > _______________________________________________ > > Post Messages to: [email protected] > > Subscription Maintenance: > > http://leafe.com/mailman/listinfo/profox > > OT-free version of this list: > > http://leafe.com/mailman/listinfo/profoxtech > > Searchable Archive: > http://leafe.com/archives/search/profox > > This message: > > > http://leafe.com/archives/byMID/profox/[EMAIL PROTECTED] > > ** All postings, unless explicitly stated otherwise, > are > > the opinions of the author, and do not constitute > legal or > > medical advice. This statement is added to the > messages for > > those lawyers who are too stupid to see the obvious. > > [excessive quoting removed by server] _______________________________________________ Post Messages to: [email protected] Subscription Maintenance: http://leafe.com/mailman/listinfo/profox OT-free version of this list: http://leafe.com/mailman/listinfo/profoxtech Searchable Archive: http://leafe.com/archives/search/profox This message: http://leafe.com/archives/byMID/profox/[EMAIL PROTECTED] ** All postings, unless explicitly stated otherwise, are the opinions of the author, and do not constitute legal or medical advice. This statement is added to the messages for those lawyers who are too stupid to see the obvious.
