The left-field threat to Europe ...

[doodab]

I expect that if you could afford it, it's value would be higher. Or perhaps not.

I think it's because there is additional value associated with being the recipient of the loan and also a cost associated with the reputational damage of not repaying it.

[doodab]

OK, so the next step is:

If everything except bread goes up 10 fold in price, and your wages remain the same:

1. Has bread got cheaper?
2. Has bread eroded in value?

Value is always relative. Relative to your appetite, the value of a loaf of bread is constant.

[Old Greg]

Value is always relative. Relative to your appetite, the value of a loaf of bread is constant.

Excellent.

So, if everything gose up in price 10 fold, but my wages stay the same, and my savings of £10,000 stay the same at a fixed rate interest of 4% p.a., have my savings been eroded in value?

[AtW]

So, if everything gose up in price 10 fold, but my wages stay the same, and my savings of £10,000 stay the same at a fixed rate interest of 4% p.a., have my savings been eroded in value?

Yes, if you buy those things that gone up in price.

[Old Greg]

Yes, if you buy those things that gone up in price.

You mean if you buy anything?

Would you care to lay out the circumstances in which your savings are not eroded in value as you've laid out the circumstances in which they are?

[AtW]

You mean if you buy anything?

You have to buy something - council tax for example, living without electricity and food isn't easy either.

Would you care to lay out the circumstances in which your savings are not eroded in value as you've laid out the circumstances in which they are?

Savings are not eroded in value when inflation (increase in prices - saying this especially to Freamon) is less than net (after tax) interest rate paid on them. That was the case few years ago when inflation was 2% and interest rates were 5%.

Right now inflation is easy over 5% and interest on savings is near 0%.

Debt does not get cheaper however because it becomes harder to service it due to higher costs of essentials, so proportion of money going towards paying off existing debt is higher, painful cut backs just to afford mortgage have to happen - all that makes it feel that debt got more expensive even if in nominal terms it's the same amount.

The only debt that got cheaper to service are mortgages linked to BoE rate. It's false economy though because of much higher inflation that more than exceeds savings in rate paid.

[doodab]

Excellent.

So, if everything gose up in price 10 fold, but my wages stay the same, and my savings of £10,000 stay the same at a fixed rate interest of 4% p.a., have my savings been eroded in value?

Relative to the value of your labour, no. You would have to do exactly the same amount of work to earn £10,000 as you would before.

[Old Greg]

Relative to the value of your labour, no. You would have to do exactly the same amount of work to earn £10,000 as you would before.

But it's value is it's purchasing power, not your ability to acquire it. Otherwise, if your salary doubles, the value of your savings halve.

[AtW]

But it's value is it's purchasing power, not your ability to acquire it.

Indeed.

But with the debt it's the other way around - unless your salary grows (inflates) your debt isn't getting any cheaper to pay off when other prices go up.

The big question is how long normal inflation can go up without wage inflation taking place - savings rates in this country weren't very high in the boom days.

[Old Greg]

Indeed.

But with the debt it's the other way around - unless your salary grows (inflates) your debt isn't getting any cheaper to pay off when other prices go up.

The big question is how long normal inflation can go up without wage inflation taking place - savings rates in this country weren't very high in the boom days.

OK - but we're talking about value, not ability to pay off.

So if you have savings of £10k and debts of £10k, both at 4% fixed and everything goes up in price 10-fold but your wages remain the same, then ther value of the savings is decreased, and the value of debt remains the same, so you're worse off than if you had no debts and no savings?

5 o'clock. It's been fun!