Tuesday, May 10, 2016

Knock knock knocking on inflation's door

I doubt after this year you will ever hear me talk about deflation again. It takes a very special set of circumstance to cause deflation. Generally it is a very rare occurrence in history, and really just goes against the way humans really behave. In my opinion we are slightly hard wired for inflation.

First, new people are born every day. And those people only know the prices of the things they grew up with. It's going to take them 20 years to care about inflation because the price they know is the price they know.

Second, people desire expensive things. They "like" cheap things, but can you really say anyone "desires" them? There are tons of things people could buy much more cheaply, but don't because the item is a status symbol. These are not my rules. They are stupid human rules. I don't make them up. I only observe them. I'm sure hard core economists will freak out about my comments. There are the way things work in textbooks, and then there is the way things work in reality because of stupid human rules.

To recap. Inflation is too much money chasing too few products and services. Apply it quite literally and you'll be able to figure out the relationship with inflation/deflation more easily. Up until this year we haven't triggered the "too few products and services" part of inflation. I feel fairly certain we have crossed that point - and how! I think there is starting to be very little slack in the economy.

One of the many reasons I feel this way is because the are some really alarming things happening in the housing sector. I know people keep thinking we are going to have a second housing bubble, but I think that is fantasy. Giving your house up was almost a fad at one point. I doubt I will ever see that again. Honestly, the only reason I didn't give up my place is because of the way I grew up. When you grow up poor, Owning a house is a huge deal. I think I've spent my entire life trying to figure out how to get one - and then through the recession trying to figure out how to keep one.

Anyway. When I look through the listings in my city all of a sudden I think about half of the listings are million dollar listings. I have never seen this before. Some might see this as validation the bubble is bursting. What I see is very little at the low end. Scratch that. There is NO low end market at all. It doesn't exist anymore. Both starter houses I've owned are now at 90% of the value of the house I own now. Which is unbelievable. And no - my house is not a million dollar house. But my starter places started out at half the price of the place I own now. They are now so close in price that I might have been better off if I had never moved from my starter place.

All I know is that building has never been depressed for this long. A few months ago builders came out and said that housing will permanently be more expensive to build. Over they past two years they have snapped up all the cheap land. There is almost no vacant land parcels in my downtown at all. I see it in city after city all over the Valley.

When this administration is gone, this housing thing is going to be like a wildfire. There has never been a more coercive government in my lifetime. There is no way to predict how it will turn out. I hope not in pitchforks.

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