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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: GraceZ who wrote (25913)	12/14/2004 1:23:40 AM
From: Mike Johnston	Read Replies (1) \| Respond to of 306849

Yes you are correct i did omit the qualifier "at a high rate" in the second sentence. My mistake. However i cannot disagree more strongly with the following: Government imposed inflation is an attack on established wealth. The reason that governments do this is because the majority of the voters are in favor of less concentrated wealth and a smaller gap between rich and poor. Governments do not pursue inflationary policies, because they attempt to redistribute wealth from the rich to the poor. Inflationary policies are implemented in the self-interest of the government that is bankrupt, which means that it faces a budget deficit that cannot be reduced and has debts that cannot be repaid. Introducing new money into the economy is one of the ways a government can finance its spending if it doesn't collect enough in taxes. Then, inflation of the money supply acts as a hidden tax on earnings and wealth(cash and bonds). Also, inflation reduces the real value of government debt. Sometimes inflation is introduced to paper over some economic difficulties, be it bursting of the stock bubble or some structural weaknesses. Secondly, during inflation, the gap between rich and poor increases. It is true that some rich might suffer significant loss of wealth, however majority of the wealthy have 95 % of assets not in cash or bonds but in stocks, businesses, multiple residences, real estate investments,apartment buildings, art, foreign currencies, jewelry, gold etc. which to big extent provide a hedge against inflation. Show me a person with net worth 5 M + who has all money tied up in bonds and bank CD's. It would be an exception. In contrast, there are many, many middle class folks who might have several hundred thousand in bank deposits or bonds which they accumulated from many years of hard work. They might own one home. Some stocks. They are the ones that are slaughtered in inflation. They are not financially sophisticated to protect themselves against inflation at least not early enough to make a difference. The group that loses the most are retirees. Common "wisdom" on Wall Street dictates that as you get closer to retirement age you should move away from stocks and risky investments towards bonds and cash. And those are exactly the type of investments that get destroyed by inflation. I would go even a step further and state that inflation is a transfer of wealth from the middle class to the rich. It is not the middle class who is getting rich off the real estate bubble,but a landlord with hundreds of apartment buildings or a speculator who 20 years ago bought 200 building lots in SW Florida for 15K a piece and is now selling them for 200 or 300K each. Middle class faces rising expenses, higher mortgage payments, higher taxes. Unless they have more than one home which they can sell for cash and spend the proceeds they do not benefit. As for the poor, obviously they do not lose wealth, which they don't have, however they suffer significant decline in living standards.