“…the current problem most stems from large portion of population, say homedebters, is indebt to a small number of rich or banks. Debt defaulting frees up reduces the claim to debtor’s income and helps re-vitalize the debtors’ capability to spend. Economy is a circulation system. It runs well when it circulates well. In this circulation system, the end-demand from workers and consumers are the major drive.
By allowing banks, with the help of Treasury, to trickling REO/short sells and trying every measure to keep homedebtors in unsustainable debt by giving temporary relieve on mortage rate will drag us along japan path for many years.”
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I think that asset price deflation hits the rich more than the poor. While “the rich” do generally have more cash than poor people, more of their money is tied up in assets (stocks, bonds, housing, etc.) than poor people. Workers get their “wealth” from wages, not capital gains, so it’s possible that their wages/income goes up while asset prices decline, possibly giving them more purchasing power. If asset prices are propped up, much of it isn’t counted toward official inflation numbers, so people who earn wages or get SS benefits will lose purchasing power over time, while the rich gain purchasing power as long as their assets are the ones being propped up. This is why I hate asset price inflation. It doesn’t affect wages or payments based on CPI, it only makes the wealty even wealthier.
It really depends on how the inflation is targeted: is it targeted toward asset price inflation (like what we’re seeing now with MBS and Treasury purchases which props up the price of debt and housing), or do we see monetary inflation where everyone is sent a check for $XXX, which can prop up asset prices, but can also be used to pay off debt or for savings? The latter has a less predictable outcome.
