< Previous Release - Capital Markets Show First Signs Of Recovery
May 2011
Beware of Inflation
As inflation takes hold, generations that have never witnessed inflation will experience its destructive power.
No one deserves less forecasting credibility than the Fed. Over the last two decades, their macroeconomic forecasts have been among the poorest of any forecasters, despite the fact that they are the only forecasters who know macro policy decisions before they are announced. The Fed’s abysmal forecasting record makes our record look extraordinary, as at least we forecasted a 2009 recession in early 2006. Even as the recession was well under way, the Fed was saying there was no recession. Yet the Fed’s forecasts continue to gain respect.
Most notable in this regard is the Fed’s assurance that there is no danger of inflation. Bear in mind that this is the same Fed that worried about deflation a decade ago, subsequently flooding the market with liquidity that ultimately led to disastrous asset pricing bubbles (which they assured us did not exist), particularly for housing. Simply stated, the Fed’s assurances about inflation ring hollow.
Let’s look at some facts. We recently received notification from our healthcare insurer that healthcare costs for our company are rising by 24%. We were shocked, and discussed this increase with many other owners of small and mid-sized firms, only to find that their increases were even higher than ours. This raises a very simple question: How is it possible to have 25% increases in healthcare costs, which account for roughly 17% of GDP, and not have serious inflation? Even if all other prices in the economy remain unchanged, this healthcare increase alone would generate an aggregate inflation rate of 3.75%.
Dr. Peter Linneman is NAI Global's Chief Economist and professor at the Wharton School of Business, where he was the founding chairman for Wharton's Real Estate department and has been on faculty since 1979.
In his latest white paper, NAI Global Chief Economist Dr. Peter Linneman questions how it is possible not to have inflation in the U.S. economy when healthcare and commodities prices are rapidly increasing and Federal and State governments are running record deficits. Dr. Linneman examines the impact of CPI increases, the Federal Reserve’s monetary policy, government deficits and other factors that will lead to massive inflation in the US economy.
The white paper analyzes the impact that inflation will have on commercial real estate, forecasts the direction of interest rates and provides investment and financing strategies for property owners seeking to shield themselves from inflation’s destructive power.
Please click here to get the full report.
