“The end of free money. Really ? Published by Charles SANNAT

"The end of free money.  Really ?  Published by Charles SANNAT

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My cheeky ones, my cheeky ones,

With rising interest rates “we” believe it is the end of free money.

Logically, the percentages are going up.

And if interest rates rise, stocks will collapse and real estate will collapse. As sure as 2 and 2 are 4.

However, I think the situation is likely to be much more subtle than that, and I will try to detail this point of view, say, iconoclasm.

First, let’s look at the most important point of the Fed statements.

Goal 3% rate!

Yes, the Fed did not say that it was going to raise its key interest rates to 15%, but only to 3. Yes, I say that only because, since I was 47, I have seen interest rate hikes and reductions. 3% interest rates are not really the end of the world! In 2009/2010 the Livret A bill brought you another 4 or 5% per year and it was not the end of the world, except for the bankrupt Lehmann Brothers it is true, but in the end, the sun still rose on the planet.

So what the Fed is telling you is that it wants to break the emerging inflation by raising its rates very quickly to 3%, a level below the pain threshold of the economy but which the Fed considers quite high. lead the entire economic system into recession.

My view is that this strategy will fail, fail, fail or fail.

Why ?

Because no increase in interest rates will significantly slow down an inflation that is not linked to “demand” but to “availability”. What is rare always becomes expensive. The only way to significantly reduce inflation in such a case is to raise interest rates too high and deliberately trigger a recession to reduce demand in large proportions.

But if the rates are too high, then there will be widespread insolvency, so they can not go very high. If we increase them only moderately, then inflation will continue to rise.

Growing inflation is inflation that always ends up accelerating, as is the case in Turkey, for example. Why ? Because people’s expectations will be inflationary. If you think prices will be higher tomorrow, then buy right away even if it means storage. And you are right! But by doing so you raise prices and with this mechanism inflation is self-sustaining! You have the opposite effect of deflation. If you think it will be cheaper tomorrow, you do not buy and therefore the prices fall even more !! And you are right to wait.

Real prices!

Finally think about the actual rates.

It is the difference between the interest rate and inflation and it informs you about how broken you will be this year!

With inflation at 8.5% in the United States and rates not yet at 3%, but let’s say it will soon be at 3, you will lose at least 5.5% this year if you are an American in purchasing power.

Worse.

While we believe that the rates are rising, in fact they are falling even more at a real pace!

With inflation at 1% and negative interest rates at -0.5%, as a European I lose every year 1.5% of purchasing power.

But with average inflation in Europe above 7% and percentages at 1% (which have become positive again) I now lose more at a positive pace than when they were negative. My loss is 6% in purchasing power!

So, will you tell me?

Simple.

People will want to leave money and go to assets.

They would rather buy real estate by chance than keep pennies in the bank that are losing value.

The conclusion is simple. While everyone tells you that real estate will fall with rising interest rates, it may well be more complicated than this simple relationship.

So in order to see things more clearly, I searched for property prices from 1200. Yes 1200, the date! The Middle Ages, which makes it possible to talk about real estate crises in the long run and throughout history, kings, wars or even regime changes. I show you that the problem with real estate is not the level of interest rates !!

At the moment we live in, the relationship between interest rates and real estate is distorted, because you have other variables that are taken into account, namely the relationship between interest rates, price levels and inflation. To this must be added the parameters of the current war. But that is not all. Changes in usage AND energy transition must be taken into account. Shake everything and you will have a completely unprecedented situation for the real estate market that will take the market out of control and will completely evaporate and explode.

I explain everything to you in this special file dedicated to real estate, the most important investment for all households in our country. A file to read before making any decision to buy or sell! To read it, download it from your readers’ sites here. To register the information is there!

It’s already too late, but not everything is lost.

Υ.Γ. In 1200 the king was Philip II did not leave an eternal memory in the books of our history!

Prepare!

Charles Sunnat

“Insolentiae” means “insolence” in Latin
Write to me charles@insolentiae.com
To write to my wife helene@insolentiae.com

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