If you’ve been staying up to date with Invstr Crunch in the past week, or financial news in general, you probably know that inflation has been present in the US and that things are getting more expensive. But did you know that there are a group of people benefiting from this inflation… and no it’s not the ultra-wealthy or top 1%, but rather everyday folks. So, how could this be possible?
Well, first let’s look at the economics of an inflationary period. When prices rise, companies tend to hire more workers to increase the output of goods and take advantage of the higher prices. This causes workers to demand higher wages and a spiral is sometimes created.
This in turn results in inflation with money becoming worth less than it was worth in the past. The lucky folks in all this are those who took fixed loans before the inflationary period began, in which they are only required to pay back the amount of money they initially agreed to. In other words, borrowers are using money to repay their loans that are worth less than it was worth when they took the loan. In more precise terms, and according to Kent Smetters, the faculty director of the Penn Wharton Budget Model “you’re going to be paying back those loans with weaker purchasing power dollars than what you borrowed.” What do you think about this lucky case of people? And do you fall into it?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.