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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: koan who wrote (77771)4/16/2008 2:26:40 PM
From: benwood  Read Replies (2) of 116555
 
"If we start running 10% (or high) inflation, I would expect housing prices to float up with inflation sooner or later..."

If and only if wages rise. There will be a long lag before COLAs return, and so as the buying power of the average American will continue to decline rapidly in real terms for a minimum of another year to two years. As a result, housing prices will have to adjust downward. Increases in taxes and/or interest rates will put additional downward pressure on housing prices, possibly significantly. And continued rapid rise in energy and/or food will pressure housing prices.

The irony of the Feds doing all they can to inflate is that the symptom, retail inflation, will ravage household cash flow and so make the mortgage payment more difficult, not less.

Because of contracts, my company won't have any semblance of a cost of living raise for at least 18 months, which means my salary will decline another 10-15% prior to what optimistically will be a raise of 1/2 the going inflation rate. Retail inflation persisting at the current 11-12% rate for another 30 months means my salary will be down approximately 20% in real terms from today. And today is already down 5% from last year.

My situation is hardly unique.
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