If Real Estate Prices Stop Ascending while Inflation in other goods and services run rampant, Your House Might Become a MONEY PIT for the Next Decade – January 17, 2022,
Let’s first and foremost establish something that most capitalists don’t like to address because it despite what most people want to admit, capitalism is driven by INNOVATION. Without innovation, capitalism is inherently DEFLATIONARY. Once you comprehend this, economics becomes easier to understand. Throughout history, most of the deflationary cycles, occurred when collectivist groups tried to submerge the economy.
We can call them anything, but I prefer to call them anti-monopolists, hate that someone is creative enough to innovate something in a free market that causes that individual or groups of individuals to enrich themselves. History has shown, that the world hasn’t known of a free market capitalist country until the United States. Even during the periods of Rome, you’d have to have an army of sorts to enjoy the spoils of the market.
In the modern era in which property rights are enjoyed by the common man, only your lack of imagination and the GOVERNMENT can prevent you from becoming wealthy. You don’t even need your own money to be rich in real estate as an example, a lot of real estate investors get rich by using OTHER PEOPLE’S MONEY.
But you see the type of person who can create wealth without the monopolies created by governments are often rare. a real monopolist like John D. Rockefeller created his wealth by delivering goods and services cheaper and in a manner never seen prior. John D. Rockefeller was innovative and the entire free-market benefited from it, therefore he enriched himself.
But you see what happened after John D. Rockefeller was an effort by groups to prevent a John D. Rockefeller from ever emerging again, why? Because in the minds of many, John D. Rockefeller was too rich, too powerful, too SMART! Therefore they wanted to punish success and this of course led to GOVERNMENT regulations on the economy.
These government regulations grew and grew to the point that the economy started to have DELFATIONARY cycles because most people do not innovate things in fear of what might happen to them. Uber as an example, in most parts of the western world, were met with Taxi cab monopolists, who have laws created for their benefit via the government, of course, this makes Ridesharing more expensive in a multitude of ways, and these additional costs are passed onto the consumers.
ANTI-MONOLPOLISTS are always at war with INNOVATION and this leads to GOVERNMENT-created monopolies, it’s not like fighting against a capitalist monopoly ends monopolies, no, the trade-off of fighting against free-market monopolies is that you create a controlled GOVERNMENT monopoly. What differs from a government monopoly and a free-market monopoly is that innovations eventually replace existing monopolies, planes replaced trains and now oil is far better than it was during the period of John D. Rockefeller.
But notice the Real Estate monopoly that has been created, all of a sudden, a house is looked at as an asset that only goes up in value? How did this happen, and why did it take so long? Well, it happened because governments have borrowed a lot of money and central banks are reluctant to raise interest rates. Now, because real estate revolves around using other people’s money to enrich oneself, the laboring classes up until recently were happy taking a below-market wage, while people in the real estate classes got rich.
That’s beginning to change now, now the wage earners and private contractors are looking to bank off of their labor, and what this equates to for people in the debt servicing businesses, are higher labor costs. Now higher labour costs, might not seem like a big deal until you understand the supply chain that leads to building and MAINTAINING a home or apartment building. We’re not just talking about one private contractor wanting a pay hike, we’re talking about everyone throughout the supply chain looking for a pay increase.
Now, if you have a huge operation, this might not be that big of a deal, but if you’re small-time, you might find the equity or capital appreciation in your investments purchasing fewer goods and services in the real economy! If your home is no longer rising to keep pace with other inflationary prices, ignore the cash flow problems you might already have, you might start having capital appreciation problems.
Now, does this end up being a crash? Yes and No, some people don’t want to ruin their credit history and therefore will find a way to service their debts, others might default and who knows, maybe there’s another government bailout program. The housing market actually crashed during covid-19, what stopped it from crashing in North America was that Justin Trudeau as an example in Canada allowed for debt deferrals and he also sent Canadians free money in the mail, Donald Trump who wanted to get re-elected in the United States employed a similar strategy, which stopped the markets from crashing the U.S.
So don’t assume that a crash is coming to bring down prices, that’s not a guarantee, what appears to be a potential reality is a return to the days in which a home is a money pit and a mortgage is once again a death pledge!
Interesting times ahead!