“The end of free money. Really ? » Edited by Charles SANNAT

My dear daring ones, my dear daring ones,

With interest rates rising, “we” think this is the end of free money.

It makes sense that the stakes are going up.

And if rates rise, stocks and real estate will collapse. I’m sure 2 and 2 equals 4.

However, I think that the situation is probably much more subtle than this, and I will try to detail this point of view, shall we say, iconoclastic.

First, let’s look at the most important point of the Fed’s statements.

Target 3% rate!

Yes, the Fed did not say that it was going to raise the key rate to 15%, but only to 3. Yes, I am only saying that from the height of my 47 years I have seen rates rise and fall. Interest rates of 3% are not really the end of the world! In 2009/2010 the Livret A account was still bringing you 4 or 5% a year and it wasn’t the end of the world, except for Lehmann Brothers which went bankrupt, it’s true, but finally the sun did rise on the planet.

So, the Fed is telling you that it wants to break nascent inflation by raising its rates very quickly to 3%, a level on the edge of the economy’s pain threshold, but which the Fed thinks is high enough to break inflation, but too low to send the entire economic system into recession. .

I believe this strategy will fail, fail, fail, and fail again.

Why ?

Because no rate increase will significantly slow down inflation, which is not related to “demand”, but to “availability”. Rare always becomes expensive. The only way to significantly reduce inflation in this case is to raise interest rates very high and deliberately provoke a recession in order to reduce demand by a large proportion.

But if rates rise too high, it will lead to widespread insolvency, so they cannot go very high. If we just raise them a little, then inflation will continue to rise.

Inflation that develops always accelerates, as is the case, for example, in Turkey. Why ? Because people’s expectations will be inflationary. If you think prices will be higher tomorrow, then you buy right away, even if it means storage. And you’re right! But by doing so, you inflate prices, and it is under this mechanism that inflation is self-sustaining! You have the opposite phenomenon with deflation. If you think it will be cheaper tomorrow, you don’t buy and that’s why prices drop even more!! And you have the right to wait.

Actual prices!

Finally, think about the real stakes.

It’s the difference between the interest rate and inflation, and it lets you know how much you’re going to go broke this year!

With inflation in the United States at 8.5% and rates not yet at 3%, but let’s say they will be at 3 soon, you will lose at least 5.5% this year if you are an American in terms of purchasing power .

Worse.

While we think rates are going up, they are actually dropping even more in real terms!

With inflation at 1% and negative interest rates at -0.5%, as a European I lose 1.5% of purchasing power every year.

But with average inflation in Europe over 7% and rates at 1% (which are thus positive again), I now lose more with positive rates than when they were negative. My loss is 6% in purchasing power!

So, so you tell me?

Simple.

People will want to leave money and move on to assets.

They would rather buy real estate at random than keep pennies in the bank that depreciate.

The conclusion is simple. While everyone tells you that real estate will get cheaper as rates go up, it can be more complicated than this simple ratio.

So, so you can see things more clearly, I’ve been looking at real estate prices since 12:00. Yes, 12:00, date! The Middle Ages, which allows you to talk about real estate crises in the very long term and throughout history, about kings, wars or even regime changes. I’m showing you that the problem with real estate is not the level of interest rates!!

At the moment we live in, the relationship between rates and real estate is skewed because other variables are taken into account, in particular the relationship between interest rates, price levels and inflation. To this must be added the parameters of the current war. But that’s not all. Changes in usage AND energy transition must be taken into account. Shake it all up and you have an absolutely unprecedented situation in the real estate market, which will knock the market out of control, it will completely atomize and explode.

I will explain everything to you in this special file dedicated to real estate, the most important investment for all households in our country. The file to read before making a decision to buy… or sell! To read it, download it in your reading spaces here. There is information for a subscription!

It’s too late, but all is not lost.

PS in 1200 Philip II was king…he didn’t leave a lasting memory in our history books!

Get ready!

Charles SANNAT

“Insolentiae” is Latin for “insolence”.
Email me charles@insolentiae.com
To write to my wife helene@insolentiae.com

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