It’s always worth remembering that future cash flows aren’t guaranteed. The idea you can leverage fractions of a percent returns between loans and cash flows creates a great deal of fictional wealth that’s going to collapse at some point. Adding some real volatility to the financial system is critical for long term stability just as testing backup systems when you aren’t in a middle of a crisis.
Inflation would cheapen debt. Since wages have not caught up to productivity yet, we can see increased wages alongside the inflation which makes the real amount of consumer debt lower than it seems.
It works out in the long run because we're behind on productivity gains affecting wages in many sectors, but that has been improving especially since 2020.
Most orgs hold debt, too. A rising tide would lift all boats in this case.
If i'm understanding your description, it incentivizes holding debt?
For a massive amount of Americans significant devaluing of debt would be life changing in a positive way. Little to lose and lots to gain.
how?
Right now, wages in the US are much higher than most other parts of the world, but the fundamentals behind that are quickly disappearing. If I can hire equivalent talent in the US for $100k, EU for $50K, and Asia for $10k, that's a market friction. It's slowly levelling out.
As that's happening, and cheap goods / services from outside the US are no longer cheap, our purchasing power goes down.
Definitely it pushes other countries to dump USD reserves faster
I don't think they are gonna like to fund American infra with their money
I’m definitely misunderstanding something.