I have been sounding the inflation warning for about a year now.
We have seen runaway inflation in other countries, and some of you were around in the 1980s and will recall that inflationary period, and how the Federal Reserve Chair, Paul Volker, pushed rates through the roof to stop the bleeding.
We also had tax reform in 1980 (Economic Recovery Tax Act, ERTA) that pulled us out of that trying period. Tax reform proposed today, if implemented, will have the opposite effect.
Inflation is caused in part by “Too much money chasing too few goods.”
“Too Much Money” will continue to flow from our Government and the Federal Reserve.
Our Government will continue to pump gigantic sums of money into the economy, without corresponding production. We are told that this is necessary to pull us out of the economic morass caused by the pandemic and Governments reactions to it.
Maybe it is necessary to flood the country with cash, time will tell. The wrold is awash in cash right now.
In the meantime, if you are in real estate, it is time to examine and determine what Government funds, programs and projects will come to your area, and how you can participate.
What the results of revitalized infrastructure will do to real estate use and values? How the flow of government funds will impact your area?
At some point, interest rates must rise, and they will, and that brings another question about the biggest borrower is the US Government.
As rates rise, the debt service on the current National Debt will bite into discretionary spending, which could also have monumental effects on the economy.
In the meantime, the best hedge against inflation in the past have been equity assets (such as real estate).
From Business Insider this morning:
Inflation could spike to 20% in the next few years as the US money supply explodes, says Wharton professor Jeremy Siegel