Your income is going to drop 3% a year, every year, after you bought the house while your mortgage payment remains steady. Sounds like a bigger reduction than you anticipated.
The draw down in principal owned would address the lenders concerns about the nominal value of the home.
Really? Your 20% down-payment is almost erased after the first 7 years. Now you've only got about 12% equity. After 7 more years, you're at about 13.5%.
Assuming you're able to keep making the payments , which are now about 50% higher than when you started, in real terms.
The 'damage' borne by borrowers by lower prices (which is what you mean by 'deflation' in this context) is simply that by satisfying urgency they bear a higher cost than someone who first saved for something and then purchased it.
I'm thinking about farmers who borrow to run their farm and sell for less every year. Manufacturers who borrow to build a plant and then have to sell for less and less, year after year.
If the Federal Reserve doubled the money supply tomorrow and handed the cash out equally to the population, do you think this would constitute an increase in 'savings'
No. And if the Fed cut the money supply by 50% tomorrow, savers wouldn't benefit, because the economy would be crushed.
If the bank failed to be able to make good demand deposits they cannot be declared to have had sufficient capital.
Just how much capital do you think is sufficient?
When, and by what metric?
1945 as a percentage of GDP.
Why? Do you not take inflation into account when looking at the total repayment cost on a 30 year mortgage? The same calculation would be required of both the borrower and the lender in an environment were productivity increases raised the purchasing power of money. The result would be lower prices and shorter terms.
Really? Your 20% down-payment is almost erased after the first 7 years. Now you've only got about 12% equity. After 7 more years, you're at about 13.5%.
In 7 years my house is paid for. I'll have 100% equity and a roof over my head until I sell it. It's a little thing I like to call, 'buying what you can afford'. 30 year mortgages are a product of our inflationary environment, and not even common outside the U.S.
I'm thinking about farmers who borrow to run their farm and sell for less every year. Manufacturers who borrow to build a plant and then have to sell for less and less, year after year.
They'll simply do so to the extent profitable without being able to fob off their costs on savers who don't enjoy their profits anyway.
No. And if the Fed cut the money supply by 50% tomorrow, savers wouldn't benefit, because the economy would be crushed
Actually, savers would benefit because the purchasing power of their savings would rise considerably. But no one is talking about shrinking the money supply. 'Deflation' of prices subsequent to productivity increases that allow the pool of goods and services to expand faster than the money supply increases standards of living by making goods available to a larger segment of society. We went over this already with the improvements in computers that have brought down price, increased sales, and led to even higher levels of investment (something you insisted wouldn't happen, but is right now happening).
Just how much capital do you think is sufficient?
Enough to pay demand deposits. If you 'pull a Corzine' and start loaning out money your clients expect to be able to withdraw at a moments notice, you're asking to be liquidated, and the market will oblige.
Look at the higher government debt under the gold standard.
When, and by what metric?
1945 as a percentage of GDP.
Sorry, FDR ended the gold standard in 1933 when he confiscated privately held gold, suspended specie redemption, whilst simultaneously claiming that an ounce of gold was no longer worth $20.67, but instead $35 (not that you were allowed to trade in $35 Federal Reserve notes for an oz). When specie redemption is forbidden by law you no longer have a gold standard.
As an aside, do you look favorably on FDR's gold confiscation and inflation measures as effective depression fighting tools?