Comment by HPsquared
2 days ago
Rent and salaries don't like going down because of debt. Debts are denominated in currency units and go up with inflation (interest rates have a component to correct for inflation) but they don't decrease if the currency gains value over time (this would need negative interest rates). I suppose that's something that could be done with regulation.
Yes. And even if people could refinance, debt values going down causes further deflation.
Does it? Debt repayments are money deletion, so if debt is nominally written-off, less has to be paid back. That is, there will be less "anti-money" in the system but the "money" is still there. That increases the money supply, therefore inflationary.
You're forgetting what people do if deflation is expected to continue indefinitely, and can also expect for their notes to be written off: They stick that extra money under the mattress.
This is basically what a bunch of people did during and following the Great Depression. Deflation was continuing and the money they had lent to the banks was being written off in bank defaults. And so an entire generation learned to just stick it under the mattress (or stick it in T bills, which reliably didn't default).
Also, it's not just a literal increase of money that causes inflation, an increase in money velocity also increases inflation. Debt write-offs decrease velocity, while debt issuance increases velocity. IANAE.
Debt write-off is also money destruction. Money is debt.