patrick.net

Everyone says hyperinflation would occur suddenly and without warning…

Everyone? Only people that have no idea what they are talking about.

Landlords can just raise rent willy nilly. Wages have to go up to them to afford it, and renters have to have no options. You see wages going up, or lack of housing options?

Look at countries that have had hyperinflation. They always have years of high inflation beforehand. You see high inflation?

The idiocy on this topic blows me away. (not calling you an idiot, BTW) I can't believe this idea is still floating around.

But the only renters that would be screwed in this situation would be those renters choosing to move out during this time…

I think the renters that would be screwed the most are the ones who's incomes are not rising with the inflation. Inflations create a different class of haves and have nots: Those who's income rises (or even exceeds) the inflation rate, and those whose income do not.

Personally, I think in theory this sounds possible.. But in reality hyper-inflation won’t really affect rent prices dramatically…. or atleast if rent prices start to get out of hand.. AND Landlords/Property management companies start trying to raise rents more than 5% a year… renters of the world would unite and refuse to pay.

Unlikely you will see any large swings of price inflation even like spiraling hyper-inflation of the '70s. The collecting bargaining power of unions or any group of labor doesnt exist any longer. It just isnt gonna happen folks!

So what happened to San Diego post 1990?

thomas.wong1986 says

Unlikely you will see any large swings of price inflation even like spiraling hyper-inflation of the ’70s. The collecting bargaining power of unions or any group of labor doesnt exist any longer. It just isnt gonna happen folks!

Personally I can't really comprehend how hyper-inflation.. I'm talking Zimbabwe-style hyper-inflation where people are using $100 bills as toilet paper, would ever take hold in this country. If we ever had a true hyper-inflation type environment like Zimbabwe.. the entire world economy would come crashing down and somebody would nuke someone, World War III style Armageddon would be upon us.

So hedging your bets on real estate vs renting would be fairly insignificant in the larger scheme of things.

Wages drive everything, in the short term excess credit can distort this. We are coming off a huge credit bubble, prices are falling to what wages can support. Banks are apparently refusing to lend money to people who can't possibly pay it back.

If there is wage inflation, then indeed I would expect a chance for RE costs either renting or owning to start going up.
On the other hand if the FED raises interest rates to fight inflation then that would put pressure on sales prices.

In any case wages need to rise first before prices can rise. Hyperinflation it is true if it occurred and was high enough would benefit present owners by reducing their housing cost to zero. But lets suppose that the dollar is suddenly devalued and imported goods get expensive we would have inflation, in that most stuff costs more. But would housing prices rise? Probably not, more money would be spent on imported goods less would be left over for housing. Would everybody in China suddenly want a house in the USA driving up prices. Maybe but then what? They would rent them out to Americans at a rate dictated by local wages. Only if wages rise can prices rise in any sustainable sense

tatupu70 says

Wouldn’t you say that they are connected in that case?

Home prices up 300% vs inflation 30% over the past 10 years?
No! I would say very much disconnected.

And as we have seen after the 1989 to 1993 bubble prices eventually fall back and reconnect to the inflation norm. That is the gist of Robert Shillers work "Irrational Exhuberance 2nd Edition".

People during the bubble years were arguing you could go 1000% on prices while inflation was still mild. At what point do you say, its disconnected ...1,000%, 5,000% 10,000%...

One characteristic of hyperinflation is full employment and a manic rush to buy goods. This can happen very quickly and wages will follow

We had both high unemployment and hyperinflation in the 70s while in the 80s much lower unemployment, wage growth and still inflation declined.

YR Inflation
1973 6.2%
1974 11.0%
1975 9.1%
1976 5.8%
1977 6.5%
1978 7.6%
1979 11.3%
1980 13.5%
1981 10.3%
1982 6.2%
1983 3.2%
1984 4.3%
1985 3.6%
1986 1.9%
1987 3.6%
1988 4.1%
1989 4.8%
1990 5.4%
1991 4.2%
1992 3.0%
1993 3.0%

ptiemann says

Food became very very expensive and went from 20% to 80% - or something similar - I read this years ago and have no time right now to find the article.

Read some more on the cause of Germany hyperinflation.

http://en.wikipedia.org/wiki/World_War_I_reparations#Impact_on_the_German_economy

Salary went from 150 to 1000 so as a proportion of wages rent actually went down.

Some of this is just hilarious, really. People, use the organ between your ears. How is it possible for any lender to survive (stay in business) lending out money for LESS than the rate of inflation? It's not. A lender (bank, financial institution) with any amount of fixed-rate loans would go bust nearly immediately in a significant (hyper)inflationary environment. Either all of the banks would fail (taking down the entire market for real estate with it, mind you), or the banks would work with government to rework the contracts and adjust the interest rate and payments on formerly fixed-rate debt to match the current hyper/inflationary market conditions. This is VERY difficult to do in a rapidly changing market - In Weimar some banks tried to index formerly fixed-rate debt, but since things went exponential that didn't work. The thing is, for anything financial to function, to work, you REQUIRE a STABLE currency. If there is no stability and/or trust in the unit of exchange there can be no economy, period. Real assets other than gold (the most stable currency), food and fuel become worthless in that scenario - the only things that matter in a hyperinflation are food and fuel, with stuff like cigarettes, condoms, etc. also having value.

Look at Iceland. When their currency, the krona, collapsed a few years ago during the financial collapse, prices went UP significantly at the grocery store and gas pumps (and then there were also shortages), but guess what did NOT go up? That's right - real estate in Iceland CRATERED as lending completely froze - completely. How could the banks lend - what CURRENCY would they agree to lend? How would they be able to make genuine interest (their profit) off of the loan so that they could stay in business? These questions didn't have answers, so, in the manner of that crazy guy in Manhattan, "NO SOUP FOR YOU!"

What's good for real estate (make it easier for folks to pay off their mortage) is moderate inflation coupled with a wage price spiral coupled with a relatively STRONG economy - there must be some stability in the system.

Now, with a world full of billions of peasants willing to work for nothing, how are we supposed to induce a wage price spiral in this country? The opposite has been happening and continues.

Now, with the above going on, how are we supposed to grow our economy into something genuine and strong based on actual production instead of consumption thus inducing that healthy goldilocks moderate inflation?

It's sad, but I don't see a new NEXT BIG THING coming along to replace the bubbles we've been blowing the last few years. Whatever it is, WE NEED SOMETHING QUICK. What I think is far more likely is the generation of an obvious two-class social system - a tiny group of haves/wealthy with a HUGE group of massively-indebted, impoverished people at the bottom.

Have you noticed that lately every time the Fed TALKS big about printing up tons of cash things just CRASH anyway? Bernanke's words have become like a drug given to a dying elderly patient - its effect gradually wears off and soon exhibits no action at all. Then they die.

thomas.wong1986 says

1975 9.1%

I remember clearly when a single scoop cone at Baskin Robbins went from 20c to 25c. Kids notice such things : )

In the 1970s our still strong, pro-union labor environment allowed a workable wage price spiral to be induced.

Good luck with that these globalized days.

^ gob't is protected.

Gob't spends $5.5T not counting pensions every year. Moral: be on the gummint teat or marry someone who is.

Hey with gay marriage in CA the latter will be a lot easier.

Yea! Some do see it, thank god I was beginning to worry that not enough people saw, what is happening. I do think that we here, in the USA are going to LEARN what PIMCO has coined the new normal. Living with the EXCESS we have come to love, expect. Soon we will be thankful for having the BASICS of live. Comfort, safety, and some mild entertainment (reading would be preferred) We will be forced to live with less, and that is going to apply to everything, Now of course there are going to be those that have more, and or are willing to leverage themselves in order to play today. But the working man and or woman, is going to have a hard time making enough to pay for the basics, Health Care, FOOD, Energy, RENT,