inflation

[The God]

Indeed it is.



No, that's a different subject. This is limited to the effect on (of?) interest rates on the value of debt. Interest rates also affect the value of currencies. But the value of currencies is a separate discussion and that one of the places where Baldee gets confused.

The principal isn't affected by anything. It's fixed at the time of purchase and it doesn't change. The principal amount is always the same. Today a debt may trade a par, tomorrow it may not. The value of the currency (i.e. purchasing power) may change over time. But the value of the debt, independent of currency valuations, will change as interest rates change.

If you are not talking about currency, then I think you missed his point of view.

He is being very clear that a debt has two components, the unpaid principal amount which remains unchanged and interest amount which keeps varying as the rates change.

I think your reference about debt trading at par or below or at premium is direct adjustment of interest rates (IR) with inflation (I). Consider IR > I or IR = I or IR < I. I would love to borrow if IR < I.

 

[joepistole]

If you are not talking about currency, then I think you missed his point of view.

Oh, and how have I missed that point?

He is being very clear that a debt has two components, the unpaid principal amount which remains unchanged and interest amount which keeps varying as the rates change.

And I have been quite clear, for pricing or valuation, the principal amount is irrelevant. What is relevant are the expected cash flows and interest rates as those factors affect the price or the value of debt.

Baldee's argument was that higher interest rates do not affect the value of debt, and per previous posts, that simply isn't true. Baldee is confusing the principal amount with the actual value of debt. I again reference to you my previous Wells Fargo reference. It's really not that complicated. It's a simple matter of math. Contrary to Baldee's assertion, higher interest rates lower the value of debt.

I think your reference about debt trading at par or below or at premium is direct adjustment of interest rates (IR) with inflation (I). Consider IR > I or IR = I or IR < I. I would love to borrow if IR < I.

Debt trading above, at or below par is the direct result of interest rate expectations. Haven't I written that several times now? As I previously wrote, inflation is but one of the components of interest rates.

https://www.thebalance.com/components-of-investors-required-rate-of-return-357619

 

[Baldeee]

And I have been quite clear, for pricing or valuation, the principal amount is irrelevant.

Noone has said otherwise.
But is also irrelevant to the actual point that was originally made.
You have simply started arguing this strawman.

Baldee's argument was that higher interest rates do not affect the value of debt...

No, that was not my argument.
As has been explained to you.

Baldee is confusing the principal amount with the actual value of debt.

No, I am not confusing the two.
The argument was specifically about the principal.
This has been reiterated to you repeatedly.
Yet you carry on with your strawman.

Enjoy arguing against yourself, please, as that's all you're doing thus far.

 

[joepistole]

Noone has said otherwise.

But is also irrelevant to the actual point that was originally made.

You have simply started arguing this strawman.
No, that was not my argument.
As has been explained to you.
No, I am not confusing the two.
The argument was specifically about the principal.
This has been reiterated to you repeatedly.
Yet you carry on with your strawman.
Enjoy arguing against yourself, please, as that's all you're doing thus far.

So you don’t remember writing, “Agreed that Inflation does devalue existing debt, but disagree that higher interest rates devalue it.”?

That’s not a straw man. That’s what you wrote in post #9.

You assertion is not only wrong, it's contradictory in that inflation expectations are a core part of interest rates. You cannot have it both ways.

Inflation devalues the currency. Rising interest rates devalues debt, be it a mortgage, car loan, student loan, or a bond as explained by my previous posts. You have erroneously conflated currency and debt. Are you admitting you were wrong?

 

[Baldeee]

So you don’t remember writing, “Agreed that Inflation does devalue existing debt, but disagree that higher interest rates devalue it.”?

That’s not a straw man. That’s what you wrote in post #9.

Yes, in the context of debt referring to the principal.
You have been told this.
Repeatedly.
Your subsequent comments in this thread that don't address that, including that the principal was irrelevant, and your continuing along that path, is thus a strawman.
Deal with it.
Or don't.
Your choice.

 

[joepistole]

Yes, in the context of debt referring to the principal.
You have been told this.
Repeatedly.
Your subsequent comments in this thread that don't address that, including that the principal was irrelevant, and your continuing along that path, is thus a strawman.
Deal with it.
Or don't.
Your choice.

And you have been repeatedly told the principal is totally irrelevant. Deal with it or not. The principal doesn't trump basic math.

You keep trying to conflated currency valuation with debt valuation. The two are not the same. Contrary to your assertion when interest rates rise the value of debt declines. And that has nothing to do with principal.

 

[Baldeee]

And you have been repeatedly told the principal is totally irrelevant. Deal with it or not. The principal doesn't trump basic math.

You keep trying to conflated currency valuation with debt valuation. The two are not the same. Contrary to your assertion when interest rates rise the value of debt declines. And that has nothing to do with principal.

There is no conflation, there is simply you not actually talking about what billvon and I were actually discussing.
Oh, that's right, you think what billvon and I were talking about (the principal) is irrelevant to what billvon and I were talking about (the principal).
Got it!
Please, continue your strawman as though it has any bearing at all.

 

[joepistole]

There is no conflation, there is simply you not actually talking about what billvon and I were actually discussing.
Oh, that's right, you think what billvon and I were talking about (the principal) is irrelevant to what billvon and I were talking about (the principal).
Got it!
Please, continue your strawman as though it has any bearing at all.

You are obfuscating. This isn't about Billvon. This is about your assertion that higher interest rates do not affect debt valuations. The only one attempting to float a straw man is you.