But Dismal, even if demand is highly inelastic we know that this still constitutes a “income transfer” between borrowers and savers – as the real buying power of savings will decline, and the real buying power of future income has risen.

Even if the allocation of resources is completely unchanged, there is a welfare relevant transfer.

“This really only applies to highly discrete consumption”

Or discretionary spending, or spending that is time dependent (preferences do change over time after all). In fact, I would say it accounts for the majority of spending.

Now, what is fundamentally driving the initial above is the lifetime budget constraint – if we think that is satisfied then the trade-off is between borrowing and saving is as stated.

When it comes to the last two paragraphs I am assuming some consumption smoothing. The data does indicate that the young borrow more than the old, and that the old are more asset rich – so the conclusion seems fair.