Ze, 'Ow you say, Deflation Watch. Eurozone edition

Thrugelmir

N1AK wrote: »

There is a reason why people who understand economics fear deflation.

If you are hard wired to inflationary policies then you merely dig yourself a bigger hole.

Crashy_Time

wotsthat wrote: »

In your scenario the banker might not get paid but you're a bankrupt with no job. Seems like a lose lose.

You don`t have to lose your job to default on banker mans debts, just ask anyone who got credit card debt written off.

wotsthat

Crashy_Time wrote: »

You don`t have to lose your job to default on banker mans debts, just ask anyone who got credit card debt written off.

Generally defaulting on debt has negative consequences for both parties as your scenario highlighted.

In the fantasy world you inhabit (where you play the hero) this may not be the case. It's your world though so I suppose you get to make the rules.

Generali

Inflation in the Eurozone is now at -0.2% and falling:

http://www.tradingeconomics.com/euro-area/inflation-cpi

Thrugelmir

Generali wrote: »

Inflation in the Eurozone is now at -0.2% and falling:

Perhaps it's no bad thing. :think:

Generali

We live in interesting times. An unexpected side effect of all this is that it seems that interest rates can fall below zero.

You now have to pay money to lend money to Nestle. Their bonds cost more to buy than you will get back in interest and principal payments!

michaels

Is this not the same as a btl landlord charging less rent than the cost of capital in the home that with capital gains they will still make a profit?

Generali

michaels wrote: »

Is this not the same as a btl landlord charging less rent than the cost of capital in the home that with capital gains they will still make a profit?

Not really because the BTL LL expects to make a profit overall. In this scenario you will make a small capital loss even if the bond pays out.

This is more to do with it being increasingly hard to find assets to protect your capital. Contrary to popular belief, most people are most interested in capital preservation rather than wealth gains, especially the rich.

purch

Generali wrote: »

Their bonds cost more to buy than you will get back in interest and principal payments!

I can think of better places to "park" my money.

CLAPTON

N1AK wrote: »

You know what won't fall? The size of the national debt and the interest payments we need to make. So now you have have a government asking to borrow money while it's ability to pay is decreasing, lenders want higher rates to account for the risk...

There is a reason why people who understand economics fear deflation.

I not sure of the evidence that as inflation has fallen then we have seen interest rates rise.