Deflation is good!

Our federal government is doing everything it can to inflate housing prices. Of course, taxpayers are on the hook for trillions of dollars in mortgages, so increasing housing prices does reduce taxpayer’s liabilities. Inflation helps borrowers and hurts savers. If homes truly increased in value, that would be a great thing. But, if housing prices go up only because our government keeps interest rates artificially low and intentionally prints more money, then any housing price increases are not real. If the price of your home doubles, and all other prices also double, then there is no real gain.

If housing prices went down like electronics and clothing, what would be wrong with that? Wouldn’t it be nice if houses became more and more affordable? I know that people who own homes feel great when they believe that their home has increased in value. I feel the same way. But it is a false feeling. If housing prices went down, more people would buy houses – just like electronics. Do you not buy a computer or cell phone because you are afraid that the price will go down next month?

No one wants to see their pay go down. What if your pay got cut in half, but at the same time all prices went down by half? Would you be any worse off? No. We live in a world where the vast majority of people make less money than those of us in the U.S. There is, and will continue to be, tremendous worldwide downward pressure on wages and costs. The key for each individual it to be productive. If you are productive, as valued by others, then you will earn a competitive income. If you do not have skills and are not productive, then you will have problems. That is true whether we have inflation or deflation.

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