Sunday, December 21, 2008

Falling Prices (3) - Inflation is Good?

We have had inflation for so long, that people have begun to assume that inflation is good. For example, house prices are now so high, that home owners are only able to cope with the huge debt needed to buy a house, because the endemic inflation has reduced the burden of their mortgages. Over the last decade, inflation has made it possible for home owners to cope with really high debt levels, because rising house prices increase the equity of people with mortgages.

Governments are usually huge debtors. In the modern world, most governments have enormous public debt. They love inflation because even at low rates, it gradually erodes the burden of the outstanding debt. The declining value of debt, allows the government to increase debt further. Politicians like debt, because it allows them to spend money, without having to raise taxes.

Many people now believe that a little inflation is a good thing, but it reality inflation is a two-edged sword. It might reward those who are in debt, but it punishes savers. The value of savings is eroded by inflation. Even if inflation is between two and three percent, which most government see as a noble goal, the value of a responsible person’s savings will be halved in fifteen years. In thirty years, the saving will be worthless. Any phenomena that hurts saving and rewards debt is dangerous for an economy.

God’s blessing falls on lenders and not on borrowers.

For the LORD your God will bless you as he has promised, and you will lend to many nations but will borrow from none. You will rule over many nations but none will rule over you (Deut 15:6).
Borrowing is sometimes necessary, but is dangerous because it removes freedom.
The rich rule over the poor, and the borrower is servant to the lender (Prov 22:7).
Inflation blesses debtors and harms lenders. God works the other way round. Being free from the need to borrow is a fruit of his blessing.
You will lend to many nations but will borrow from none. The LORD will make you the head, not the tail. If you pay attention to the commands of the LORD your God that I give you this day and carefully follow them, you will always be at the top, never at the bottom (Deut 28:12,13).
Inflation fights with against God’s blessing.

2 comments:

Steve Scott said...

"...it punishes savers."

Maybe this is the reason so few people really save anymore. Why save when it does no good? Maybe (in part) the reason many people don't save isn't because they're rabid consumerists, it's because they're having to find other ways to protect themselves from the government printing press. Just a thought.

RonMcK said...

I agree