This stuff is honestly way over my knowledge but the way I see it, as a renter wanting to buy in the next couple years, if I own a house I am paying a mortgage. That gives me equity every payment. So every month instead of my landlord getting my money the bank will and in the end I own the house so can sell it back. Also owning a house opens all sorts of opportunities a renter does not get. Subsidies to install solar panels and save energy would go to the home owner. If you own a house and want a loan for a car let’s say, you automatically get a better interest rate then me because I am higher risk. There are all sorts of ways owning a house can make or save you money. But based on my understanding of this article the entire value of houses will crash at one point as we can’t keep increasing the costs so when the market finally realizes we have been over selling, the people holding the houses at that point risk devaluation of their home and potentially lost all their investments. Again I am trying to figure what this all means and there are certainly a lot more knowledgeable people here that know more then my layman’s view.

As far as I am aware the danish national bank have needed to print more money to devalue the danish krone because it is by law pegged to the euro, but as there is more trust in the krone they have needed to print more to make it within the 1% of the euro.

If prices dropped so my loan was 100% or 110% of the value, I’d try to get back to a reasonable level (85% say) as quickly as possible. This would require saving more and spending less than I’d otherwise do.

Even if I have no plans on selling, you never know when you might be forced to sell (death, divorce, illness, work, ...).

You're not paying 300k+?

Clearly I live in the wrong city. 300k would get you a leasehold to someone backyard with a tent in it where I live.

I need to move.

The real issue in a deflationary situation loans effectively become more not less expensive vs 0 inflation situations.

Lending always carries the risk of not being paid back, where you can always just keep your own money. So, a 100$ loan needs to return the original 100$ + the risk + some incentive not to use this money for something else.

Thus loans are effectively the absolute value of (inflation or deflation rates) + a constant factor.

> I've never understood this angle either. Buying stuff doesn't make stuff appear out of thin air. Buying stuff means buying stuff from the people who already have it, which for valuable things like housing is already the rich. The difference between buying an apartment and renting it is whether I give the rich person 30 years' worth of rent right now in a lump some or slowly over time. I don't see how I "win" against the rich person by giving them my money earlier.

There are 2 ways to make a profit on a property investment:

1. Sell at a higher price in the future which offsets all of the costs of holding the property (rented out or not).

2. Rent out at a higher monthly price than whatever the monthly cost is (cost spread out over whatever your investment horizon is), right now.

Number 2 means (assuming the house was purchased on credit, which at negative interest rates it should always be as much as possible) that you as the renter(s) are paying back the owners credit he took out for the house, the house's maintenance, the owner's house insurance and taxes and all other costs + THE APPRECIATION IN VALUE OF THE HOUSE FOR THE TIME YOU RENT (higher housing prices = higher monthly rent) + a profit.

When you buy a house, you're not giving the owner 30 years worth of rent. You're giving the owner the value of the house, which is way less than the accumulated rent would be over 30 years.

Buying a house (on credit) is only ever a net loss if the house's value goes down significantly for whatever reason. Reasons can be: uninsured destruction (war, fire, bad renters) or deflation (due to oversupply of houses such as is the case in Japan right now or due to the overall economy going bad).

In other words: assuming a healthy economy, buying a property as an investment (with a 15 - 30 year investment horizon to be able to spread all initial costs over a longer period of time) is ALWAYS a win assuming you can find renters. In the current market (at least in most cities of Western Europe) you will always find renters, because a significant part of the population who would like to buy a house simply can't get the credit they need to buy a house close to where their employment is. Due to the housing prices being too inflated relative to average income from employment.

Summary: housing prices higher than the credit people can afford = people can't get credit to buy a house = lots of renters on the market (people rent instead) = makes it interesting to own houses to rent out for profit = housing prices higher = poor people can't get credit to buy a house = lots of renters on the market and so on.

See what's happening? Those who can afford real estate investments start receiving an ever larger portion of the income of people who can't afford real estate investments. AKA: the poor and middle class get poorer and the rich get richer.

Actually 'crisis' just means 'decisive change is impending'. There doesn't have to be panic.

Coordinated or systemic movement of money in any form can be a crisis. There doesn't have to be reporting or emotion for the situation to spiral out of control. That is to say, the panic can follow the crisis.

> If someone like Trump can continuously interrupt the media, they effectively control it through disruption, and then the media cannot focus for long enough on anything for people to fully panic and cause a full blown crisis.

Coming out of two straight years of one collusion “bombshell” report after another I agree with you. I avoided the markets when I was unsure if what was being said was true (it definitely seemed true to me).

Now it seemed to be largely politically motivated and I’m totally “insensitive” to the MSM reports on Trump and I’m ready to make long term investments in the country again. Too bad I stayed out of the markets for the last year because those looked to be good times.

> Deflation will destabilize the economy if there is massive borrowing, and since most Western government owe about 100 % of GDP, they will prevent deflation for the very reasons you describe. But the middle class should embrace deflation and so should the general economy as it encourages savings which encourages investments which is where the growth in productivity comes from.

You're right. Deflation is not always a bad thing. But runaway deflation is. And runaway deflation is especially likely when there is no increased productivity (like their was in the period you mention) combined with massive debts (which didn't exist in the period you mention, because there was not fractional reserve banking like we have now and value of currencies where intrinsically backed by scarcity of gold).

A little deflation shouldn't be bad for a healthy economy with "sound money", but as you describe yourself: that's not what we're working with here.

It's not just governments who have massive amounts of debt. It's also large businesses and most real estate owners. The middle class should definitely not embrace deflation right now, because deflation could very quickly spiral into runaway deflation.

Runaway deflation = lower wages, lower housing prices, less government budget (less absolute taxes coming in). Less government budget = greater inequality, worse educational quality, leading to decrease in productivity, more crime, more corruption, more waste of resources and aside from government issues: less investments by companies, lower stock market prices, insufficient pension fund reserves due to investments going down (= lower pensions), people losing their house (lower wage = some people can't afford payments on house credit and are foreclosed), housing prices going down more because of foreclosures and bad economy, people increasingly start selling their house at an increasing loss, housing prices go down further, more people start losing and so on.

End result: Japan. Or perhaps worse: the 1930's crash (a prime example of runaway deflation), subsequent poverty, social unrest and wars.

I feel this is not a great explanation though, perhaps someone else can do better.

I think the main reason behind the better economic situation in the 1871-1914 period was not a deflationary economy, but the steady increase in factory output -- the industrialization was on its height -- and medical knowledge -- proper sanitation, proper medical procedures, hygiene. Add to that the benefits Europe and the US reaped from colonial imperialism: the "masses" gained access to commodities like sugar, tea, coffee but also cheap alcohol and opium.

Usually it was not a gradual improvement in the lifes of common people from poor farmers to well-off middle class. By far the most people not employed in the agrarian sector were working class (working in factories, mines, etc.) and their situation was, compared to today, a hellish nightmare: overcrowded slums, poor access to water and medicine, unstable food-supply. These conditions only improved slightly by the end of that period, usually out of pressure/fear of socialist/communist mass agitation.

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You are right, the life of most people living in that time period improved significantly. But I would say despite of a deflationary economy, not because of it. And only a minimal percentage of those were middle class.

Japan's a known potential model of the future of the European economy as they're demographically about 15 years ahead of Europe.

Would make sense to some extend.

The difference with Japan is that while they have a large amount of debt, they also have large amounts of assets. Japan is the world's largest creditor nation : https://en.wikipedia.org/wiki/Net_international_investment_p.... If you look at that list, you will find that US is the most indebted country in the world and that many Western countries tend to be very indebted.

In most places, except the obvious exceptions, the government can also create new land for construction.

The loss or gain is not realized until the home owner sells the house. So just don’t sell during the crash.

That is a good point, particularly your ending that it's for those who control the world currency... Until they fail.

But did that really improve the lives for people globally? Couldn't it be seen as a global redistribution of wealth, from countries who used the USD to the U.S? If you were cynical you might even say the U.S. robbed the other countries.

I wouldn't be so sure to conclude that inflation has allowed economic growth from your example, but more a redistribution of one.

The argument that the central banks couldn't fight inflation by raising rates is sort of undermined by the fact that central banks have raised rates in very recent history and there was no catastrophe, in 2011 the ECB raised rates 1/2% and all the Eurozone got was a stunted recovery. The US Fed had been steadily raising rates since 2016 and has since admitted that it was a mistake and reversed course.

The tools to fight deflation/low-inflation are mostly left in the hands of government spending, which unfortunately governments refuse to do for political reasons, the central bank's tools are limited.

   What about Japan, or the Eurozone?

What about them? The story you are telling is the some one from the 90's about Japan and it has been wrong so far, at what point is there enough evidence to prove that Japan was right to keep interest rates low? Furthermore Abenomics has been largely a success, which is doubling-down on those policies plus being willing to pile on even more debt, raising an expectation of future inflation to create investment (not quite exactly but more or less as Krugman encouraged them to in the 90's).

The Eurozone's problem is clearly austerity in the face of the structural issues that the single currency creates, as long as the wealthy members are unwilling to spend and the rules prevent the poorer members from spending they are caught in a low-demand trap of their own creation. https://www.jstor.org/stable/24385696

  They have even lower interest rates and they're once again stagnating.
  You really believe if money was even cheaper, even more growth could be achieved?

I believe that higher rates will hurt them (supported by the evidence from the 2011 ECB & 2015 Fed rate increases and the study of their consequences) and, as I stated in my original post they, like the Danish, should be spending money on things they need to stimulate their economy and invest in the future.

If you can borrow money at negative interest rates and build assets of any future value then you should do it and make citizens' lives better now and in the future.

Add Sweden as well, same story here. The national bank (Riksbanken) can not increase interest rates because it would have disastrous consequences for the large majority of over-extended loan takers. The low interest rates in their turn lead to the value of the Swedish currency plummeting. No matter what they do, a 'correction' is unavoidable - either the Swedish crown goes to junk status or the number of foreclosures and bankruptcies will skyrocket, followed by the collapse of the housing market, followed by the collapse of those banks which have to write down all those loans with real-estate backing.

And Australia

Yes, good point. The standard 30 year fixed loan in the US is not common internationally.

I would live to see this. But are there any indications that this is actually happening?

China, Russia and possibly Korea (which army is far larger than Japan's) come to mind. While Japan still does have 100+ million people the population is going to shrink and those who live there are getting older and older. The low birth rate will make it hard for Japan to maintain a standing army, the ageing population also makes it harder to maintain a reserve force.

> Setting economic policy based on fighting 1970's inflation battles instead of accepting the evidence that the US economy is finally near or at full employment by sustaining a low interest rate environment contrary to evidence and experience. Full employment is good for workers and less-good for asset owners.

You can always point to numbers that are supposedly good (such as questionable government-issued employment statistics) and I can always point to numbers that are bad (the PMI, the Russell 2000, the unprecedented levels of sovereign and individual debt).

If the economy really was that great now for people on main street, why is Trump losing approval among the people that voted for him to fix this exact issue?

> Governments can borrow money to build infrastructure that make people's lives better, I don't know how you can dispute that this policy option exists or say that it "doesn't work that way" when you know, governments do that stuff all the time. When in doubt, and you have low interest rates, build a sewage treatment plant!

I'm not against emergency measures by any means, but the tendency with governments is to make the emergency measure of today the status quo of tomorrow. This idea that you can spend yourself wealthy at the national level is just as flawed as the idea of trickle-down-economics.

Sure, in the short term, debt-financed government programs can stimulate the economy, but that debt has to be paid off. You have moved demand from the future into the present. It will be missing from the future, because money spent on debt service cannot be spent on anything else. That is unless you don't pay off the debt, or you erase it through inflation, in which case that is still money missing from someone's pocket, and it's not just foreign pockets - most US debt is internal. It's also not going to be the rich guys' pockets, because they saw it all coming and bought up all the hard assets already.

Yeah, don't borrow in someone else's currency is a pretty important point, the 10 year Danish Krone Bond is at a -0.48%. If you have to borrow in someone else's currency then you are absolutely /not/ the same position that Denmark is right now.