Why is deflation bad?

[DontSayBanana]

This year, the federal minimum wage will be more than I made at my first job.

Tell me about it. On January 1st, NJ's state minimum wage jumped by $1.35 to $8.50 considering that my unemployment is still based on my income of $7.15 from when I was working at PBP, that's grossly unfair.

[Monoriu]

I have a general question regarding repaying debt: Let's say I owe $13,000 in student loans (which is what I actually owe  ). If Obama decided to go Mugabe style and crank out a gazillion dollars tomorrow, would the banks stick to making me pay $13,000? Because man, that would solve SO many of my cash flow problems right there, if I could just mail in a worthless piece of paper to pay for that worthless piece of paper hanging up on my wall.

Unless there is an odd provision in the loan terms, I think the answer should be yes - you only have to repay US$13k regardless of inflation. 

[Fireblade]

I have a general question regarding repaying debt: Let's say I owe $13,000 in student loans (which is what I actually owe  ). If Obama decided to go Mugabe style and crank out a gazillion dollars tomorrow, would the banks stick to making me pay $13,000? Because man, that would solve SO many of my cash flow problems right there, if I could just mail in a worthless piece of paper to pay for that worthless piece of paper hanging up on my wall.

Unless there is an odd provision in the loan terms, I think the answer should be yes - you only have to repay US$13k regardless of inflation.

Excellent. Obama, please be everything the right-wingers say you are. 

[DontSayBanana]

I have a general question regarding repaying debt: Let's say I owe $13,000 in student loans (which is what I actually owe  ). If Obama decided to go Mugabe style and crank out a gazillion dollars tomorrow, would the banks stick to making me pay $13,000? Because man, that would solve SO many of my cash flow problems right there, if I could just mail in a worthless piece of paper to pay for that worthless piece of paper hanging up on my wall.

That depends on whether your interest rate is fixed or variable. If the former, they're screwed. If you've got variable rate loans, they can take an initial hit, but if you don't have it paid off immediately, prepare to be smacked with sky-high interest rates as a counter.

[Admiral Yi]

That depends on whether your interest rate is fixed or variable. If the former, they're screwed. If you've got variable rate loans, they can take an initial hit, but if you don't have it paid off immediately, prepare to be smacked with sky-high interest rates as a counter.

You mean the other way around.  If we hyperinflated you could pay a fixed rate loan with pocket change.

The US Department of Ed issed variable rate student loans for two years in the 90s, everything else is fixed. 

[Habbaku]

Department of Ed issed variable

Elaborate.

[Admiral Yi]

Elaborate.

Issued.  Does that clear it up?

[Habbaku]

Indeed.  Wasn't sure if you were going for "issued" there or not.

[dps]

Think government employees who live below their means 

Well, remember, in the US we've got federal minimum wage. Except in four states, pretty much everybody at that income level is an at-will employee, which means they could be fired for any reason (or even no reason at all), provided the reason doesn't violate anti-discrimination laws or the state's labor laws.

Yeah, but unless the business is closing, they can't fire all the minimum wage earner they employee.  So a typical fast-food employee is going to be protected against deflation unless the place they work at shuts down.  Of course, it the downturn is bad enough, eventually people will stop eating out so much, so some fast-food place will close, but on the other hand, they aren't the only place that employees minimum wage earners--a lot of retail and clerical workers are at or near minimum wage.

In theory, Congress could lower the minimum wage, but I don't see that happening.

[lustindarkness]

A deflated tire just doesn't roll very good.

[crazy canuck]

A deflated tire just doesn't roll very good.

Uses more gas and so is bad for the enviornment.