Is there a serious risk of hyper inflation happening with trillions of dollars of printed money being pumped into the world economy by governments around the globe? Historical evidence shows that when too much money chases too few goods-and-services it invariably results in inflation.
What should an investor do if hyper inflation does occur. I will appreciate your comments on this very important topic.
Praveen Kumar
We’re in somewhat of a weird place. The FED cannot target interest rates to rise in the near future because we’re still in a recovery cycle, but targeting interest rates higher (tightening the money supply) is one way to curb inflation. Inflation typically comes with too much growth too quickly. In order to slow that growth down, the FED will tighten the money supply which causes interest rates to rise–the harder it is to access something, money in this case, the more you’re going to pay for that commodity.
When interest rates rise, and they have absolutely nowhere to go but up from here, home prices will invariably fall. Some people will argue that this is not the case. When interest rates rise, it is more difficult for families and investors to afford properties, which in return causes prices to drop to a level where it makes fiscal sense to purchase a property at a higher interest rate. A similar relationship occurs in bonds, but on a risk-based relationship between a bond’s yield and it’s price.
I honestly cannot tell you whether we’re actually in a recovery, or just in a bounce from last March’s lows. There are so many variables and factors to take into account which both prove and disprove the recovery. I can tell you that interest have nowhere to go but up! Right now is the time to leverage up, and when interest rates are sky-high you buy in CASH because home prices will be be low. This obviously won’t apply to all areas, especially areas that are very sought-after, but for the most part home prices will have to drop even lower than where we’re at right now.