A Brief Economic Review

sickeconomyJust as it occurred during the 1930’s Great Depression, current markets have the tendency to default to a deflationary trend.

This trend is being derailed (only temporarily) by the Central Bank’s increase in the money supply. Being determined to fight deflation, the Fed appears to be working at inflating.

Such event keeps the markets up (including the real estate market) however at the cost of the dollar debasement. Newly created money supply is channeled into assets (many times into govt programs and subsidies that end up part into assets and part circulating throughout the economy raising the prices of goods and services which are in demand), thus artificially increasing their values.  Inflation of money supply is the leading cause to the debasement of the dollar and the price inflation. Conversely, contraction of money supply leads to a strong currency and price deflation. The Fed’s QE (Quantitative Easing) can only occur by increasing the nation’s money supply which unfortunately debases the currency.

Most of us would want to see the job market improve.  The government is attempting to do that but the way they’re doing it is by…again, expanding the money supply which debases the dollar, leads to price inflation, and decreases the standard of living for many Americans. Instead, if they removed the minimum wage laws and the restrictions placed on small/medium size businesses we’d have more people on employment payroll than on government benefits programs.

The appreciation we’ve seen in the real estate, commodities, and stock markets since the last economic crash is not truly a healthy one.  While low prices and demand in certain sectors have been there we cannot give them full credit.  Many contemporary economists focus on “those that are seen” events and their immediate effects.  But the “unseen” events of monetary expansion and interest rate suppression are more powerful, for because they’re unforeseen they promote malinvestments.

What’s next?  I don’t have a crystal ball but I believe investors should be careful. Extra due diligence is recommended, detailed exit strategy with several back up plans , and evaluations for long term hold should the rates rise.

As far as what we should ask from our politicians I’d say ask for more freedom in the markets, a friendlier approach to business, and less government regulations and interference in the economy.

If you have a Commercial R.E. project you wish to discuss please  Contact me.

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3 thoughts on “A Brief Economic Review

  1. I completely agree with you on this one. I believe our central banks along with our current president have devalued the American dollar so much, that investing is riskier than ever. Good read and keep up the great work.

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