Interesting discussion!
I have no real interest in politics, but have a strong interest in what politicians will do that might distort the market. While the cost of the existing bailouts is staggering, I suspect we will see more bailouts, more stimulus programs, more jobs programs, and generally more government spending to come. How Uncle Sam intends to pay for this is anybody's guess, but it just doesn't seem likely taxes could rise that much without an open revolt. That leaves inflating their way out of the mess. I expect we will see stagflation (stagnating economy, high unemployment, and runaway inflation all at the same time) within the next few years. Whether this unprecedented stimulus will result in a recovery in short order is hard to know for certain. Personally, I doubt it will have its intended effect. And at the very least, the seeds are sewn for the next recession; much as this one was foreseen by many, including myself, starting in early 2002.
It’s been said, “don’t play the market you want; play the market you’ve got.†So the question is, what’s the smart play? I’m still forming observations, and have more questions than answers. But for now, I see a few things that seem fairly clear:
1. Cash isn’t a bad thing to have right now, but with the inflation that’s coming, the value of that cash will erode quickly
2. In an inflationary environment, fixed rate debt, such as a mortgage gets cheaper in real dollars over time. (Part of why Real Estate appeals to me!)
3. Home sales would seem to stagnate in a down economy
4. It wouldn’t shock me to see much of the public works spending, jobs, and other government favor to funnel disproportionately to battleground states. This is not a criticism of Obama; just an observation about how the political process works generally
5. People will always need a place to live
But the million-dollar question is, what opportunities could this present for the real estate investor? What (and when) are the bargains that with the benefit of hindsight will look smart?
One more point: Jeff Tumbarello mentioned that, “recovery of the economy was incomplete until World War IIâ€. It is a widely held belief that WWII pulled the US out of the depression, but most economists and economically savvy historians would say that the depression actually lasted until 1948. Not to split hairs, but it speaks to the causes of what brought about the economic recovery.
In any event, even in a crisis there are opportunities; including some that would not occur otherwise. Who did well in the 1970s? Who did well in 1991-1993? Who did well in the depression? There is always somebody that can capitalize on the situation. Who is it, and how can we do so as well?
