Chris Martenson was on tech ticker the other day and, when asked whether we’ll see in-flation or de-flation in the period ahead he replies with a resounding “Yes”.
Says Martenson: “The Continuous Commodity Index is absolutely screaming inflation at this point in time over the past eight or nine year timeframe, but, at the same time, we’re seeing houses decline in price, we’re seeing a number of other things – asset prices – move lower, which, I think is what the Fed is most concerned about at this point in time. So, I think we’re going to see both”. He’s also convinced that a double-dip recession is imminent.
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I have long believed that there was something like “virtual inflation” in real estate. The inflation for housing became decoupled from real inflation; the gap was initially viewed as the creation of wealth, when in reality it was a transfer of wealth from the future to the present.
However, now that the asset bubble has collapsed, the value of real estate is reconciling itself with real inflation in search of its true value. The “loss of virtual inflation” appears like deflation; it is the wealth that was transferred from the future.
Real prices never stopped rising. True inflation continues unabated. Hopefully, housing prices will asymptotically approach what they should have been had there been no virtual inflation. However, it might be the case that true inflation will rise so it can “catch up” to the virtual inflation that wrecked real estate; this would mitigate the appearance of deflation.