Quote:
Originally Posted by OLD BOY
We can just forget what we need to pay back then.  |
I'll explain it simply.
I borrow £100 from Mick for 10 years. Interest is £1 a year (which I pay each year), however inflation reduces the real terms value of my debt by £2 a year.
In 2030 I borrow £100 (which is only worth £80 in 2020 prices) to repay Mick from Paul and carry out the same wheeze.
Rinse and repeat until by 2070 I'm looking around for the 2020 equivalent of about £25 to repay Maggy., Who I borrowed from in 2060. The debt has cost me £10 each decade to maintain. Total cost less than total borrowed in real terms.
Obviously interest rates and inflation are percentages but the principle applies where inflation exceeds interest rates - which is pretty much going to be forever now because we can't afford the house price crash bringing the whole pozni scheme down.