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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Jim McMannis who wrote (81201)7/15/2007 2:32:51 PM
From: GraceZRead Replies (2) of 306849
 
Assets don't get counted in inflation numbers.

Assets have values based on future cash flows which are discounted according to inflation expectations. Since the promise of cash in the future is always worth less than cash in hand (even without inflation) asset prices will always rise in response to falling inflation expectations and fall in response to rising inflation expectation (because you have to discount the future cash flows more).

Houses are a pretty emotionally charged asset class because everyone needs to live somewhere and they are a basic necessity, so to really understand the concept that asset prices rise in response to lower inflation expectations it is better to look at an asset class which is purely financial in nature like bonds.

If bonds rose in price in response to a falling rate of inflation (attendant with falling interest rates) would you see those rising prices as indicative of monetary inflation?
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