Quote: (01-21-2012 03:58 PM)Gmac Wrote:
Rapid deflation wouldn't be a bad thing.
No? It would mean for most people you'd be making less money while your house payment stays the same. Disaster.
We have been seeing rapid deflation in the housing sector for the past several years. That is why the economy is not recovering. Wages are barely treading water or going backward while the amount people owe on their homes stays the same, thus you have all these underwater mortgages and people walking away from their homes. I have a friend that walked away from his house last year. Bought it at $430k in 2005. He couldn't fathom paying a mortgage on $430k when the house had deflated to half that. Even though he could make the payment, he decided to sacrifice his credit and hand the keys back to the bank. Now you have all this glut of inventory that's not moving. This is just one effect of deflation.
Also think about what would happen for the average guy with $50,000 in student loans. If you have massive deflation, that $50,000 debt may effectively become $100k debt because the money is now worth more. Same with credit card debt.
Deflation will be good for people with a lot of cash and no debt and who have stable, salaried jobs and no mortgage. But how many fit into that category?