> Countries that we normally think of as very well off, such as Denmark, Sweden and the Netherlands are among the most indebted people on earth in terms of household debt to income. They can't afford much higher interest rates at all,
That's a little mixed up. The effect of inflation is to reduce the effective size of debt, not increase it. So if you owe someone $500US(which has a barter value of ~100 lattes), and a burst of inflation hits the dollar such that the price of a latte doubles, then you only need to pay back 50 lattes to the lender. You win!
Obviously it's the holder of the debt that ends up on the hook for this. Which is why interest rates of lots of debt get indexed in some way to adjust with inflation (or things like the prime rate, which itself tends to track inflation). So the net effect is complicated. But on the whole it's the lenders of money who stand to lose the most when inflation rises. Those who have borrowed come out ahead, on average.
So the net effect of inflation (assuming no second order effect like a global crash, yada yada yada) is to effect a wealth transfer from the lenders of money (e.g. banks and institutional investors) to the borrowers of money (consumers and governments).
There are some very smart people who think this isn't necessarily a bad thing at all.
> Those who have borrowed come out ahead, on average.
I once stayed in a hotel room where the shower had the heat I wanted on average, it was horrible.
But when it comes to real estate, as long as you can afford the increase in interest you'll probably be fine. My concern, here in Sweden at least, is that given the current real estate prices here, I can't see how people with average incomes can afford a more normal interest rate like 4-5%.
In America, most people get fixed-rate 30 year mortgages, so if you buy now, even if interest rates rise subsequently, your monthly payment doesn't change for the next 30 years.
That is not quite what he is saying. People in the big cities in Scandinavia have so much debt and variable interest loans that they will be hit hard by an increase in interest. It'll eat away disposable income and in general lower economic activity.
My debt in the house has fix interest for 5 year periods, so if the interest at the start of next period is higher, it's going to cost me disposable income.
That's a little mixed up. The effect of inflation is to reduce the effective size of debt, not increase it. So if you owe someone $500US(which has a barter value of ~100 lattes), and a burst of inflation hits the dollar such that the price of a latte doubles, then you only need to pay back 50 lattes to the lender. You win!
Obviously it's the holder of the debt that ends up on the hook for this. Which is why interest rates of lots of debt get indexed in some way to adjust with inflation (or things like the prime rate, which itself tends to track inflation). So the net effect is complicated. But on the whole it's the lenders of money who stand to lose the most when inflation rises. Those who have borrowed come out ahead, on average.
So the net effect of inflation (assuming no second order effect like a global crash, yada yada yada) is to effect a wealth transfer from the lenders of money (e.g. banks and institutional investors) to the borrowers of money (consumers and governments).
There are some very smart people who think this isn't necessarily a bad thing at all.