relationship between income, inflation and debt? interest, mortgage, between, against

nixie24

What is the relationship between income, inflation and debt?

If your income is fixed, and you're paying down the mortgage, aren't you paying down the mortgage with dollars worth less? Isnt it a washout when netting the lowered purchasing power of income against the mortgage interest?

cyber21

nevermind. it depends on whether your income is "sticky" relative to your debt.

"The major distributional impact of inflation arises from differences in the kinds of assets and liabilities that people hold. When people owe money, a sharp rise in prices is a windfall gain for them. Suppose you borrow $100,000 to buy a house and your annual fixed interest rate mortgage payments are $10,000. Suddenly, a great inflation doubles all wages and incomes. Your nominal mortgage payment is still $10,000 per year, but its real cost is halved. You will need to work only half as long as before to make your mortgage payment. The great inflation has increased your wealth by cutting in half the real value of your mortgage debt."

LokiDog2

uh... is it smthg like if your income is fixed and the inflation rate increases, then your purchasing power decreases. If your purchasing power decrease, then you'll need debt to keep the same level of consumption.....?