Market Skeptics: Dollar Devaluation Brings Illusion Of Prosperity

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Do not be fooled by the appearance of economic recovery created by the dollar’s fall! The onset of hyperinflation is often misinterpreted as economic recovery. If you haven’t already, I read about The Nightmare German Inflation. In offers grim preview of what awaits the UK and US. It also illustrates the imaginary wealth created by a currency collapse.

Hyperinflation is by far the most devastating economic disaster a country. While deflation, like the US experienced in the 1930, brings suffering, hyperinflation wipes out the middle class and destroys the very fabric of a nation’s society. In trying to “protect” America from deflation, the fed is steering the country towards a far worse fate.

Obviously, one of the two must occur.  Either the inflated value of homes must come down to earth (thereby wiping out middle-class America’s single greatest asset), or the price of everything else must rise to become comparable with the over-inflated values of our homes.

Compare home prices in Virginia alone compared against 1980.  I pulled this data from the Office of Federal Housing Enterprise Oversight and inserted the trendline:


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Notice anything?  Two things:

  1. Housing as an investment at the beginning of the decade really was a great investment.
  2. Housing prices now are way over valued from the trendline.

Things are starting to bottom out a bit, but do you see how much prices have to come down in order for the correction to truly reflect reality?

The truth may pan out somewhere in the middle.  We’ll see a good devaluation of housing prices of a further 20% of their value, followed by a modest increase in the price of everything.  Food, clothes, electronics, gas, etc.  It will all go up… everything except your salary, that is.

That’s the pitfall of inflation… it’s taxation by other means.  And as middle-income families discover they have less and less disposable income, the economy will take another dip.  Prices will go up, fewer people will be able to afford those goods, small businesses will close, and those out of jobs will continue to seek some form of assistance — private or public — until the strain on government is as such where they stop spending or raise taxes.  If spending is decreased, economic recovery will ensue.  If taxes are raised, that’s less disposable income to fuel the economy, and this cycle repeats itself.

Now there are some who might argue this is a road to somewhere.  But that would be such a spurious thought…

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