How bank lending could lead to widespread inflation?

Résumé du document

Where a creditor (e.g. a bank) and a debtor (e.g. a household) are bound by a fixed interest rate, inflation favors the debtor at the expense of the creditor (credit). Consider a household that borrows from his bank a sum S the nominal interest rate of 8 %, payable the following year.

If inflation is zero, the bank key in the following year the sum plus interest provided either: S * (1 +0.08). The sum has the same value as paid (S).

With an inflation rate of 3 %, the bank still affects the amount plus interest provided either: S (1 +0.08). But the sum made the repayment year allows the bank to buy less than it could have bought the year of the loan. The actual value of the rebate is received: (1 +0.08) * (1-0, 03) * S is approximately (1 +0.05) * S of the sum lent. This means that in real terms, the debtor repays less. And even much less than the rate of inflation exceeds the nominal interest rate of the loan.

When the inflation rate is higher than the nominal interest rate, the real interest rate is negative: that is to say we earn money to borrow. It also stimulates demand and tends to further fuel inflationary pressures.
Inflation costs for the whole economy, linked to difficulties in efficient allocation of resources and also gains linked to irrationality in financial markets.

Faced with the threat of inflation, the creditor may only partially cover, inflation is an unpredictable phenomenon. It can then either be used to cover financial systems , including swaps interest rate established relationships , and ask in new relationships guarantees , such counterparties ready insensitive to inflation ( mortgage property, inflation-indexed value , indexed property reference like gold for example) value or reimbursement rates indexed to inflation ( variable rate mortgage ) .

Extraits

[...] An example captures the problem. Alain Bertrand and Claude investing year n 100000 (any unit) in a property (e.g. a house), which they use for a year, then sell (to year n Suppose that economic conditions are different for the three individuals (monetary zone time), the inflation rate is different. Consequences of inflation Individual purchase value (currency year Resale Value (currency year n inflation (rate) Resale Value (currency year Naive calculation compares the values common, regardless of inflation. Then it seems that Claude was the best deal. [...]

[...] How bank lending could lead to widespread inflation? Contents A / Definition: 1 B / what is the consequence of the increase in bank loans on the generalization of inflation? 1 C / Case Concrete generalization of inflation 2 A / Definition: Until the 1960s, inflation means the excess monetary means in relation to the Offer (including the phenomenon of rising prices and the loss of purchasing power of money result). Gaël Fain and it defines inflation as excess of solvent demand on offer. [...]

[...] The actual value of the rebate is received: + 0.08 ) * 03) * S is approximately + 0.05 ) * S of the sum lent. This means that in real terms, the debtor repays less. And even much less than the rate of inflation exceeds the nominal interest rate of the loan. When the inflation rate is higher than the nominal interest rate, the real interest rate is negative: that is to say we earn money to borrow. It also stimulates demand and tends to further fuel inflationary pressures. [...]

[...] To hedge when the Debtor State is suspected of wanting to use this method, investors often require a debt increase of interest rates by incorporating a risk premium, or the rate peg in a clause called revision or as a property not controlled by the debtor State value. (E.g.: foreign currency, basket of currencies, gold value, etc.). The same type creditor loses in times of inflation is the annuitant holds a fixed annuity. For this agent, the value of his pension decreases proportionally to inflation without the possibility of coverage. [...]

[...] ) Therefore absorb inflation only increase prices of consumer goods, excluding price increases affecting assets (assets, financial, real estate,) can be considered a misnomer, as a result of a mode restrictive measure of inflation. However, it is true that the term inflation can be applied to any regular phenomenon of increased level of deflator , the reality remains that all central banks with an objective of monetary policy targeting inflation aim indeed inflation in consumer prices , excluding particular asset inflation (Asset price Targeting ) . B / what is the consequence of the increase in bank loans on the generalization of inflation? Where a creditor (e.g. a bank) and a debtor (e.g. [...]