Saturday, 15 February 2014

Inflation - Yes please!

Soon after taking office, the current prime minister of Japan announced a target of 2% inflation. For most of the twentieth century, in most places, 2% would have a been a target to get inflation down to. Not push it up to.

As far as my wallet is concerned, with a fixed rate loan, the higher the better. This means the value of my property goes up and the amount I owe goes down.

The biggest worry is sustained deflation. If salaries go down, money becomes more valuable and the value of my property goes down, it will be more difficult to pay interest and the value of the property will be less than the amount I owe. This would not be good, but I think it's unlikely to happen.

Although I stand to gain personally from inflation, politically it seems like a bad idea, and it would be much better if things just stayed around the same prices, and money kept the same value. This has been the case in Japan for most of the time I've lived here. 

I may be looking through rose-tinted spectacles, and I'm sure a crash will come sooner or later, but most people in Japan seem to be surviving in relative comfort and the the doom and gloom from economists about stagnation seems misplaced. There is certainly a declining manufacturing industry here, but I think that has more to do with natural cycles of boom and bust, and stagnation in schools, where innovation and thinking outside the box should be encouraged.

Inflation was certainly a great invention that gets people to put their money in banks instead of keeping it safe somewhere. At first sight putting your money in banks seem like a good idea, since they are paying out interest, but in fact the banks stand to gain the most, since you are giving them money. Overall, inflation favours wealthy people, as wealthy people tend to own a lot of things, and their wealth is not in cash. 

So I'm sure the economy will be fine. After all, so many powerful people have got so much invested in it.