I am glad to see Piggs are beginning to see what’s happening:
1. Government is committed to do “whatever it takes” to allow homeowners to hold onto their massive capital gains accumulated since the early 1980’s.
2. In the short run, the levers that will be pulled all involve generating lots of easy (taxpayer-funded) money for people who buy overpriced homes.
3. In the long run, the easy money levers will generate enough inflation to sustain existing nominal home prices that are unsustainable in real terms. Our govt will make sure this becomes well established before “realizing” that inflation is a menace once again and starts, very slowly and ineffectually for many years, fighting it.
Who gains and who loses? Well, people who bought their first home a long time ago are going to do well. The more expensive a home they bought, and the more borrowed money they used, the better off they will be. People who bought more recently are not going to do well or terribly badly either – they will get no great gains and no great losses, either.
People who buy other real assets without leverage will do neither all that well nor really badly. Inflation will be neutral to them, except that it will increase their tax bill on phantom inflation-driven nominal price gains.
People who buy real assets using borrowed money at fixed interest rates will do OK, as they get to default, in effect, on part of their debt due to inflation.
People who save in banks and other fixed dollar instruments will lose – big. Every period of history in unique in some respects, but I’d encourage all Piggs (many of whom are too young to remember the 1970s’) to become familiar with the financial history of the 1970’s and later. We might be about to re-live some of what happened then.
