Any Economists Out There? (Poser Economists OK too.)

By
Real Estate Agent with ERA Brokers Consolidated

Please feel free to critique my personal Investment Strategy.  Tear it to shreds if you want, I am looking for well thought out responses.

So far the Federal Govt, has spent hundreds of billions of dollars in the various "save the economy" efforts.  Undoubtedly, hundreds of billions more will be committed and spent.  When its all said and done we are talking TRILLIONS of dollars.  New money is being printed and circulated in a very rapid manner.

 

So......What is the outcome?  What unintended consequences will result?  I would assume we are laying the foundation for some serious future inflation.  The only  way (that I can conceive) the Federal government dealing with the enormous (and getting bigger by the day) deficits, is to essentially encourage inflation at some future point.  (not right now of course, dealing with the criis at hand is all the focus)

 

My theory is that in the next 5-10 years we will see inflation if not officially encouraged, then maybe less vigorously fought.  I believe that those who carry debt, (especially cheap debt like that which is readily available today) will benefit from inflationary consequences.  For selfish reason's I hope this is right, as I am a buy and hold Real Estate investor, and I have a bunch of low, fixed rate mortgages, that I believe the combination of time and inflation will really benefit.

 

I looked forward to your comments.

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Topic:
ActiveRain Community
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NATIONWIDE INVESTORS NETWORK
Realtors®
Tags:
inflation
federal deficit
investment strategy

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Anonymous #1
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In theory, you are exactly right. A huge increase in public debt should result in higher inflation, lower long term growth rates, and increased taxes to pay for the burden. However, there is the theory of stag-deflation, which is very possible in the current economic climate. This is the worst of all possible worlds, no growth or recession coupled with deflation. This was the case of Japan in the 90's, a period called the lost decade. This is a pretty complex theory, maybe I will write a blog on it sometime. The most important thing to know is that an increase in public debt is negative because of the unintended consequences that you rightly point out will almost always occur. 

December 16, 2008 11:00 PM
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Rainer
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Ray Cox

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