Inflation, Hyperinflation and Real Estate
By Gonzalo Lira
Most people in the advanced economies – including most economists – really don’t have any idea what inflation and hyperinflation is. They don’t have a clue because they haven’t lived through it, or were children when it happened in the States and in Europe during the Seventies.
They think it’s nothing more complicated than a rise in prices that ripples through the economy – like a spectator in a football stadium who stands up, obliging the people sitting behind him to also stand up, so that they too can see the action on the pitch, which in turn forces the people behind them to stand up too, until finally, the whole stadium is up on its feet.
That’s what these people seem to think: Inflation – and the more severe hyperinflation – affects all goods and services and asset classes equally, in a rippling effect. Sort of like a rising tide.
Because of this very foolish fallacy, many economists and interested observers think that real assets – commodities, land, buildings, factories & machinery – all rise in price equally during an inflationary spell, whereas financial assets – bonds, stocks – uniformly fall.