Is Inflation Inevitable – At Some Point!

When I was in high school, I had a savings account with $20k, I am a saver. I went to deposit more money and the teller said I should put this in a CD. That CD was earning over 20% in interest. I thought that was awesome, but in the 80s, inflation was out of control. When I went to buy a house in the 90s, the interest rate on our loan was 8.5%. I didn’t think much about it as I didn’t know any different. Below, I’ve shared a portion of a blog from Jay Vorhees at JVM Lending with his thoughts on inflation:

He currently thinks much less on inflation and considers deflation/recession a possibility in the near term (over the net 6 to 24 months) like he discussed in a recent blogs, including this one, his Car Wash Indicator and Scary LinkedIn Indicator. My personal favorite is the Car Wash Indicator.

But after the next one to two years, all bets are off, as prices are likely to surge everywhere for several reasons.

1. Commodity Prices Will Surge:  The world is facing massive energy and commodity shortages due to a lack of investment over the last several decades, and it will take decades more to replenish supplies and/or to find alternatives and thus we will see massive resource shortages. 
2.  Labor Shortages. This is something author Peter Zeihan addresses often, as the largest generation of workers in American history is now retiring en masse, and that will foster a labor shortage that will drive up labor costs and prices overall.
 3. Monetizing Debt.  America’s overall debt load is 3.7x GDP right now, and that there is no way we can pay it off. Our Federal debt alone ($30 trillion) exceeds GDP ($25 trillion), and when you couple that with all our state and local debts and, worse, our unfunded pension, social security, and Medicare liabilities (over $100 trillion) – we are screwed. The only way we will pay off all that debt is by effectively printing money or conjuring it out of thin air somehow – and that will result in massive inflation.

Jay goes on to mention that one of the best inflation hedges is real estate, which he likes best because it generates income while appreciating, has a history of good performance against inflation, and more. That’s where my two cents come in!

I believe now or in the near future is a good time to buy. We are in an odd transitioning market. Some homes are selling for about 1% less than asking and may have had a price reduction and homes are sitting on the market longer. Then around the 17-24 day mark, a couple of buyers make an offer. Other homes are selling for more than list. It depends on location, condition and where the listing agent was able to list out the gate. If rates go back down, you will see more buyers in the market, multiple offers and prices increasing. If rates go over 6% and continue going up, then prices will come down, but the higher rate erodes your price point. If you are looking to buy, buy now and if the rates go down you can refi. If rates go up, you will be glad you bought when you did.

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