Investing is filled with paradoxes. For example, there is a big difference between the domestic and foreign exchange of real estate. When real estate changes hands domestically, it is not necessarily inflationary because we are talking about internal transfers from one bank account to another. If foreign capital comes to America, it is effectively new money that is inflationary. I am making a bet on real estate in part because I believe the depreciating dollar will attract foreign capital into the U.S. and support the real estate market in a downturn. This is the paradox of investing.
I remember back when Japan was in a full-blown crisis, people were confused about the rising Yen. Well citizens were repatriating their funds, which created artificial demand for the Yen. The rising Yen by no means signified that the earthquake in Japan was a net positive for the economy. It is somewhat similar to what’s happening with Treasuries. Treasuries are rising, and people assume it’s because they are a safe haven. Well this is utter garbage.
We are different from Japan, and I cringe when people say that Treasuries are going to remain strong because that’s what happened in Japan even with their bulging deficits. When debt is domestically held, as was the case in Japan, interest payments are recycled internally. That is crucial distinction. Foreigners hold our debt, which means interest expenditures are constantly sent abroad, doing absolutely nothing to stimulate our economy. And people are getting bullish on Treasuries at a time when Medicare and Social Security costs are set to skyrocket? Interesting.
It’s important to figure out what the paradoxes of the future will be. This is a global economy, so it is wise to think from a global perspective. The center of the financial world is gradually shifting away from America, which means prior economic relationships will not apply. The events of the future will be unusual to say the least because we are in the middle of concurrent economic, political, and social shifts.Follow