While wandering through the blogosphere, I happened across a couple of post about inflation and the possibility of the US spiralling into a hyper-inflationary mode because of the massive debt, stagnant national economy and continued world economic issues.
The theories have been around for a couple of years, and many of them point back to Germany (1923), Hungary (1946) or Argentina (1975-1991) as examples... and there are plenty of others.
I am not one that wanders around expecting worst case outcomes for the United States. There have been dire predictions before. In fact, I think every few years we get a new round of dire predictions...
- Global Warming
- Global Cooling
- Economic Calamity for Debt
- Economic Calamity from Taxes
It is in the best interests of government to have a huge problem to solve every few years... it allows them to usurp power from a willing citizenry.
Back to the point... Hyper-Inflationary Real Estate Deals...
Imagine if you will, EVERYTHING going into bubble mode at once. Not only every consumer item, but even wages. In Hungary, at its peak, prices doubled every 15 hours. Of course, wages don't react as fast, so it hurts. It hurts everyone... Except...
There are lots of examples of 50% and 100% annual inflation rates. What would happen if you made twice as much money next year as this? And twice as much the next year? Of course, your daily expenses would climb right along (or in front of) the increase in pay... but any fixed rate debt wouldn't. Homes, cars and fixed rate credit cards would suddenly become your friends.
New debt wouldn't be so nice to acquire. You can be sure that lenders would want to make sure any rates they offered outpaced the inflation...
While it seems that it would be cool to have the price of a house or car go up faster than it could depreciate, the downside would be that buying a new one would be very difficult... And that is often how the cycle ends. Economic activity slows to a crawl.
It could happen... I probably won't. But, if it did, sitting on a low-rate 30 year fixed mortgage would mitigate a little of the damage.