Pay my home off with a weeks wages?

Question

Ok, somebody explain why I dont want a period of intense inflation that is corrected. Sure I would lose my savings(both dollars of it) but I could pay off my debts including my house with dollars or rand or shekels or whatever that I could cart to the bank in a wheelbarrow. Sounds like a great trade, my saving wiped out and my debt too. So come on there has to be someone out there that can tell me why this would be so bad - after all, all my life I been hearing inflation is the worst thing there is, even worse that a depression or recessions(which I have been through a cpl that we went through to whip inflation)

Answer 1

You're making the assumption that your salary would quickly adjust to the new inflation, which rarely happens.  Prices adjust much more quickly than pay.  Inflation _decreases_ your buying power.  Intense inflation intensely decreases your buying power.  If you're making $10 an hour now, and there's a huge inflation wherein a hamburger suddenly costs $2000, it's not like WalMart is going to start paying you $10,000 an hour.  And your $2 is savings now buys nothing, instead of just a hamburger.

If you had a foreign currency before the inflation, that wouldn't help since the exchange rate would adjust with the inflation.  You might gain some buying power, but not much.

And you're assuming that there are market forces that could generate a period of intense inflation and then correct it...  and that they would.  In theory, the FED could do this, but it would be calamitous.

What you'd be looking for is a sudden intense DEFLATION, where the $2.00 in your savings could buy a new house.  But there are even worse problems with that, including the idea that most businesses would collapse immediately since they could no longer to pay anyone since revenue would collapse.

Bottom line, a slow rate of inflation is pretty much ideal.  Massive shocks to the economy rarely do anything good.

Answer 2

the reason is as a borrower you do want inflation. That is if you don't have large savings at all in fixed interest rate accounts but all of your debt is in fixed rate accounts AND the only thing you are worried about is paying off the debt.