"Aside from the perceptions of a public that may
not understand reality, I have no problem with
falling wages as long as the prices for goods and
services are falling faster. I have no stats on
nominal wages, but real wages must have been
rising. Personally, I would gladly take a 3% pay
cut every year in dollar terms and accept no
interest on my cash balances if prices were falling
by 7% annually.
No one is offering that deal though."
No, and they're not likely to -- for very long. Even if we assume variable rate financing, you aren't going to get COLA's on the principal amount.
As with inflation, deflation, likewise, is only an *average*. Government workers, union workers (that still have jobs), retirees on fixed incomes, et al., are living it up. So are those with "unique talents", like superstar entertainers, athletes, etc. The rest of us are getting hammered.
Those of us working stiffs whose debt is uncollateralized (almost everyone with a credit card) will be trying to make constant sum payments to principal, while our wages shrink. For awhile, the banks will appear to be rolling in dough, as the real value of the principal payments they receive keeps rising. Then the defaults start rolling in...
And then the real fun begins. The nominal value of collateral relentlessly falls below the principal amount owed, because the market price of the collateral keeps shrinking. It will make no economic sense to repay the amount still owed on a home, office building, factory, etc., if a new one can be bought or built at a lower nominal price than the cost of repaying the balance remaining on the one already owned, that is, if financial intermediaries still exist to finance the construction or purchases of existing buildings. |
