Worthless Money, Worthless Economy

[Jim Nickerson]

Re: Worthless Money, Worthless Economy

EJ writes in:

Important to not confuse a forecast for rain with approval of rain. We have consistently forecast inflation in 2001 when when others said it was impossible. We continue to do so because the conditions which have caused the inflation not only remain but have intensified. We do not approve, but it is not hard to find many who do.

Had dinner the other day with a friend visiting from Europe. He owns a fair amount of property in the US and has since the 1980s. He remarked how much inflation had reduced his mortgage interest payments to insignificance.

Might not the "insigificance" to the interest payments be based upon his money being in Euros?

I don't think the same "insignificance" likely is being felt by those average wage earners in the US.

[Slimprofits]

Re: Worthless Money, Worthless Economy

Here's a link to the Poppenhagen article (is this the original source?)

http://www.gold-eagle.com/editorials...gen082608.html

It appears to be the original source as the site lists this as the first editorial written by Poppenhagen for them. I've emailed to ask them.

[EJ]

Re: Worthless Money, Worthless Economy

Might not the "insigificance" to the interest payments be based upon his money being in Euros?

I don't think the same "insignificance" likely is being felt by those average wage earners in the US.

You buy a condo for $100,000 in 1985 on a 10% 30 year mortgage, 20% down, $820/mo. on an income of $50,000 annual or 25% of after tax monthly income.

Assuming 3% annual inflation, by 2007 the house is worth $190,000 and assuming no increase in pay grade inflation has increased income to $95,000 per year. Now his monthly payment is 12% of monthly income.

Dollar inflation lowered the monthly cost of interest payments relative to income, and by moving to Europe and earning wages in euros. He gets a double win.

[Jim Nickerson]

Re: Worthless Money, Worthless Economy

You buy a condo for $100,000 in 1985 on a 10% 30 year mortgage, 20% down, $820/mo. on an income of $50,000 annual or 25% of after tax monthly income.

Assuming 3% annual inflation, by 2007 the house is worth $190,000 and assuming no increase in pay grade inflation has increased income to $95,000 per year. Now his monthly payment is 12% of monthly income.

Dollar inflation lowered the monthly cost of interest payments relative to income, and by moving to Europe and earning wages in euros. He gets a double win.

Thanks, EJ, for running those numbers and putting them up.

But how about the increase in property taxes over 23 years, perhaps mortagage insurance, homeowners insurance, personal items floater, the utility fees for water, garbage, electricity, natural gas, upkeep on the house, and lawn care unless one is a doityourselfer. I don't know how it would all total out, but I imagine that the real gain for your friend has been the difference in the valuations of the dollar vs. Euro.

I am not so sure ole Joe Sixpack who has lived in the home would feel much richer or better off, especially if he has any kids who along with him and wife require health insurance, and if the kids wish to have pop pay their way to college.

[Nervous Drake]

Re: Worthless Money, Worthless Economy

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[c1ue]

Re: Worthless Money, Worthless Economy

From what I experienced locally, rental prices were going up towards the end of the housing bubble - as available rentals shrank dramatically between the 'build to let' and the apartment - condo conversion scheme.

As the bubble burst, there was a period where rental prices stayed high as owners preferred to have a house empty than to 'rent' for too much under the mortgage.

But now I'm starting to see rental costs dropping in the high and medium end rentals. The low end has ironically gone up as the supply vs. demand equation there was too unfavorable.

But this may change too as the McMansions start getting converted.

After all, a McMansion (4 bd, 3 bathrooms) is still much easier to convert to 3 apartments than the old 2 bedroom 1 bath houses.