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Inflation and Borrowing
Inflation is so painful, but we often overlook the positive impact of inflation on borrowing. The government understands this and engineers inflation to lower it's cost of printing and borrowing money over time.
Here's a short video on the 'real cost of borrowing' over time.
If this has you curious - read this short 3 page paper that better explains your true cost of borrowing on a mortgage.
If you are a mortgage or financial professional and you'd like a copy of my Inflation and Borrowing spreadsheet to run your own calculations - please subscribe to our BLOG (it's FREE) and I'll send you a copy via email.
Can you validate the following math? According to the Economic Policy Institute, hourly pay growth from 1979 - 2021 went up by 17.3%(https://www.epi.org/productivity-pay-gap/). If I solve for the annual rate of pay growth (%), I get 0.38%. I.e., that's the rate that turns 100 into 117.3 over 42 years.
If inflation is running 2+ percent a year and pay is going up at 0.38%, doesn't that mean pay is going up (0.38/2) roughly 1/5th as much as inflation? In other words, people are losing considerable buying power each year and debt isn't cheaper to pay back. It's nominally the same, and on an inflation-adjusted basis, it's more expensive to pay back.
Is that correct for those who did not get…