Thursday, August 28, 2008

Expect Inflation

Instapundit reports that the economy grew faster than was expected in the second quarter:
Not to say things are hunky-dory -- I'm worried about inflation -- but this doesn't look like a recession.
I think inflation is a big concern and I'm expecting to see more of it than we have really considered "normal" for quite a while. Why? Because of the housing market.

Declining home value is bad for just about everybody. Negative equity means property owners are locked into their current holdings or walk away leaving the mortgage companies taking a loss. Not being able to sell is bad for most families. You can't trade up when you have kids. Worse, you can't follow work if you get laid off. Walking away ruins your credit and in large quantities will destroy the financial sector. Either way, bad stuff.

How to fix this? I'm betting home prices are going to hold steady while most other commodities will inflate at rates higher than we'd consider normal. Eventually real estate values come back into something approaching proper perspective. This hurts the real estate investors a lot and everyone else a little, but avoids most of the big negatives of declining home prices.

That's my call for the future.

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