Hyperinflation

[Goodstuff]

With all the money printing going on there is a very real chance the US at least could experience a bout of hyperinflation.

During Weimar Germany they experienced deflation for two years as the gov`t was printing money like mad. Then, suddenly (within a month) perceptions changed and hyperinflation took over and the rest is history.
This scenario is eerily similar to what is going on in the US.

Question: How do you think hyperinflation would affect real estate prices?
How would landlords be affected if they signed a one-year contract just before hyperinflation hit?
If hyperinflation hit the US, would Canada get hit with it too?

Opinions anyone?

 

[housingrental]

I don`t see this happening
I`d have more concern about deflationary pressure
To answer your questions:

How do you think hyperinflation would affect real estate prices? The nominal value would increase. There real value could in theory decline if this meant higher financing costs or higher returns available from alternate asset classes.

How would landlords be affected if they signed a one-year contract just before hyperinflation hit? They`d miss out on the opportunity of higher rent if they had signed a lease at a later date when market rent was higher? Of course keeping your unit vacant for an extended period of time to bet on this might not be a prudent investment strategy.


If hyperinflation hit the US, would Canada get hit with it too? It is possible but not a given. Two different markets though influenced from the other...

 

[Thomas Beyer]

QUOTE (Goodstuff @ Aug 15 2010, 12:49 AM) With all the money printing going on there is a very real chance the US at least could experience a bout of hyperinflation...
In theory, hyper inflation makes sense. And of course everything "real" will go up in monetary equivalent (oil, gas, coal, gold, real estate ..)

But this is where the theory ends:

It is different in that China has its currency pegged to US $. The Asian market is growing .. the industrialized/democratic world is flattish.

Thus: US deflates currency through monetary easing (cheap debt and money printing) .. and China has more jobs and the US less !!

THERE WILL BE NO HYPERINFLATION ANYTIME SOON !!

Otherwise, US treasuries would yield very high interest rates. Even a 10 year bond is barely 3% !! Not exactly hyper-inflation. If that were the case, it would yield 6 or 8 or 10%.

Job growth is weak, economy is weak, unemployment is high, consumer spending is weak .. this is NOT an environment for rising prices !!

Canada is in much better share than the US due to
a) lower federal and provincial debt
b) less foreclosures
c) lower unemployment rate
d) more consumer spending
e) less house price fluctuations (up or down)

But with a weak US Canada will also be affected. Expect the "new normal" to be the "old normal": work hard, save lots, invest wisely, don`t overpay, don`t overlever, buy in decent locations, find decent tenants, charge reasonable rent, manage impeccably .... and you will do well in real estate !! But it will take longer than those crazy boom years from 2002 to 2007 .. and inflation will neither be 0 or negative (deflation) nor hyper-inflation !! 2-3% .. give or take a percentage !!

 

[DaveL]

[quote name=`ThomasBeyer` date=`Aug 15 2010, 09:57 AM` post=`
It is different in that China has its currency pegged to US $. The Asian market is growing .. the industrialized/democratic world is flattish.


I thought the Yuan ceased being pegged to the USD back in June?

 

[Goodstuff]

QUOTE (ThomasBeyer @ Aug 15 2010, 10:57 AM) THERE WILL BE NO HYPERINFLATION ANYTIME SOON !!

Otherwise, US treasuries would yield very high interest rates. Even a 10 year bond is barely 3% !! Not exactly hyper-inflation. If that were the case, it would yield 6 or 8 or 10%.

Job growth is weak, economy is weak, unemployment is high, consumer spending is weak .. this is NOT an environment for rising prices !!


I`ve studied Weimar and know that the economy was weak and unemployment was high for a couple years just before hyperinflation took hold. That`s what helped bring Hitler into power - all the angry unemployed people. It`s all dependent on how much money is printed.

 

[Goodstuff]

QUOTE (ThomasBeyer @ Aug 15 2010, 10:57 AM) THERE WILL BE NO HYPERINFLATION ANYTIME SOON !!

Otherwise, US treasuries would yield very high interest rates. Even a 10 year bond is barely 3% !! Not exactly hyper-inflation. If that were the case, it would yield 6 or 8 or 10%.


Also, the Federal Reserve in the US is buying back all of the Treasury Bills that the gov`t just issued with MONEY THEY CREATED OUT OF THIN AIR. That is what is keeping the interest rates down.

 

[Thomas Beyer]

QUOTE (Goodstuff @ Aug 15 2010, 01:19 PM) .. - all the angry unemployed people. ..
Sounds like Obama .. much hope .. with likely bad consequences like: even higher debt, even more regulations, even higher unemployment .. and hopefully less wars !

deflationary discussions / economic insights here: www.planbeconomics.com

 

[gwasser]

QUOTE (Goodstuff @ Aug 15 2010, 01:21 PM) Also, the Federal Reserve in the US is buying back all of the Treasury Bills that the gov`t just issued with MONEY THEY CREATED OUT OF THIN AIR. That is what is keeping the interest rates down.

There is a contradiction here. Many U.S. corporations are sitting on huge piles of cash. Just think Berkshire-Hathaway, Apple and Microsoft.
The U.S. consumer savings rate is at a decade`s high and debt is being paid off.
Only the U.S. government is recirculating its stimulus money.
Corporate U.S., especially the large banks haul in cash with the bucket full
Consumer spending of the Baby Boomers has peaked and is on the decline
Housing starts are on the decline
Housing values are on the decline
Foreclosures are still on the increase, that means persistent low housing prices for years to come.

So, there is no hyperinflation even witht the U.S. deficit.

In Europe the governments are trying to cut their deficits and debt that were initially increased to help to get the Banks there to recover from the U.S. Subprime crises and the European real estate crash. Buying government and quality government bonds is on an all-time high due to stockmarket shy investors. They don`t go into real estate but they do buy debt (do they ever learn?). The only ones holding back are U.S. banks who are skittish on mortgage loans - is that surprising?

So when you ad all this up, I`d say "Hyperinflation? You must mean DEFLATION!"

Many Corporations have seen their productivity fall lately. I guess they got the max out of their workers and will soon be forced to hire. In fact employment is creeping up in the U.S. and it shot up in Canada. Consumers will soon be more confident and start... consuming more. All the scaremongering this summer about the European Debt Crises (do we still remember that?) scared the heck out of everyone. So now that that is passing, everybody will become more optimistic. In the meantime, we also delever, so this means, modest growth, lower credit demand and low inflation. And who will do the Best? Alberta because the world needs energy to fuel the modest growing Western economies as well as the booming BRIC and emerging economies. The latter will become more internally focussed due to the increasing prosperity of the increasing middle class.