Here is a quote from an article written by Mr. Rockwell that I have mixed feelings about:
"Deflation makes it "far more difficult to pay back existing loans." It's true that loans are paid back in dollars that are more valuable than the ones borrowed. But that is part of the risk one takes when deciding to borrow in the first place. If we all had perfect foresight, our behavior would change substantially. But that is no case for pressing the pause button on economic affairs. What deflation does is provide a disincentive to borrow and an incentive to use current savings for purposes of investment. It means a reward for well-capitalized companies and individuals—a good thing all around."
What if I decide to take out a 30 year mortgage? First of all, no average American has the capital saved to purchase a house in full, so who in their right mind would take out a mortgage loan when it will have to repaid in dollars that are worth more than the dollars you had initially borrowed? Can someone explain? Thanks!
I would think if money got more valuable over time it wouldn't take as long to save up to buy a house outright. People haven't always bought homes with mortgages.
possibly taken out of context? can you post a link to the full article. perhaps he was arguing how to get people to spend more money without having to inflate?
Im pretty sure the mainstream Austrian thought is to 'stop printing' and stabilize, dont inflate or deflate. or perhaps he was just arguing that deflation isnt always bad for everyone like many people in the general public feel. hard to know without the whole article.
Who in their right mind would pay 350% of the real value for a house, with $0 down and a ARM with a payment 2X their income after 5 years?
It would encourage savings, regardless. This, to my understanding, is what Lew Rockwell encourages. It would also drive housing prices down to begin with, making them easier to save and pay for, or at least a bigger percentage of the price put down.
I apologize, I should have noted that the first sentence in the paragraph was a quote form someone else, and is what Mr. Rockwell is trying to argue in the rest of the paragraph.
http://mises.org/daily/1241/ < --- LINK
Why Deflation Isn't Harmful | by Jörg Guido Hülsmann
For more, see here.
The inverse of your concern is revealing:
Who will lend money for a 30 year mortgage if it will be paid back in dollars that are less valuable (as is with inflation)?
Personally, I would say most Americans could afford to save up the capital for a house. The main reasons they do not are:
they are to used to buying thigs with debt (no incentive to save with continuous inflation);
they spend money on unnecessary things (fancy smartphones, televisions and programming, going out to eat, etc.) instead of saving that money;
they want a 4 bedroom, 3 bathroom house with 2000+ square feet for their family of four (that is, they want an unnecessarily luxurious house).
The only one worth following is the one who leads... not the one who pulls; for it is not the direction that condemns the puller, it is the rope that he holds.