The runaway economy
By Chris Sorensen - Thursday, March 4, 2010 - 9 Comments
In the rush to recovery, a new threat looms: inflation
When Thomas Hoenig took over as president of the Federal Reserve Bank of Kansas City nearly two decades ago, his 85-year-old neighbour gave him a 500,000-mark German banknote to remind him of Germany’s experience with runaway inflation following the First World War. “He told me that in 1921, the note would have bought a house,” Hoenig said during a recent speech to a U.S. budget commission. “In 1923, it would not even buy a loaf of bread. That note is framed and hanging in my office.”
Hoenig openly admits that invoking historical reminders of hyperinflation might seem overly alarmist in an era when inflation—a rise in the cost of living caused by heightened demand for products or the rising cost of producing them—has ceased to be a major concern for most North Americans. Central bankers have made fighting excess inflation, usually anything more than two per cent to three per cent, among their chief priorities in recent decades (some inflation is generally viewed as a good thing because it signals economic growth). But as the economy comes back to life after an extraordinary period that saw governments—particularly in the United States—resort to unprecedented fiscal and monetary measures to keep the world’s economies from imploding, suddenly there’s renewed concern about inflationary pressures. (Already, Canada saw a surprise jump in its inflation rate in January.) With all that extra money sloshing around in the system—inflation is sometimes thought to be caused by too many dollars chasing too few products—some are worried that the cure prescribed for the downturn could quickly become the recovery’s disease.
While unwanted inflation can be reined in by hiking interest rates, central bankers seem intent on keeping interest rates low to help speed economic recovery. People like Hoenig, meanwhile, say they are worried that a massive buildup of U.S. government debt could also lead to calls for the central bank to print more money to help pay it down sooner, which could also have long-term inflationary effects.
-
The shocking truth about the value of your home
By Duncan Hood - Monday, February 23, 2009 at 6:50 PM - 238 Comments
New evidence shows that Canadian prices could go down, and stay down, for a decade
There are still people out there who don’t believe Canada is about to be hit by a devastating housing crisis, but Riaz Kassam isn’t one of them. For him, the crisis has already arrived.
Last July, he made an $80,000 pre-sale payment on a $1.5-million penthouse condominium in Vancouver’s tony H&H Yaletown building, just a few blocks away from where he lives. Kassam, a 42-year-old computer analyst, who’s married with no kids, expected to move in by the end of 2008. But when he put his current apartment on the market, he didn’t get a single offer. He thought maybe he had priced it a little high, so he knocked a bit off. Still, no offers. He lowered it again, and again, until eventually he was offering his apartment for a full $120,000 less than his initial asking price. That’s when he realized he was in trouble. “We reached the point where we couldn’t drop the price any more,” he says, “or we wouldn’t have enough for the down payment on the new property.”
