Quote:
|
Originally Posted by Andrew
What is the cause of inflation?
Increased demand with a fixed supply causes the price of goods to rise.
|
Agreed . . .
In a perfect world supply / demand rules.
Quote:
|
Originally Posted by Andrew
Why does inflation cause interest rates to rise?
It doesn't directly, the reserve bank might raise interest rates in response to an
increase in inflation in an effort to curtail inflation.
|
Again correct . . . indirectly the money supply gets tightened to control inflation. (To reduce the demand)
Quote:
|
Originally Posted by Andrew
What effect will these two factors have on the growth of assets:
Inflation: higher building costs - current stock has higher perceived value, little effect
IMHO, as inflation rises so does wages and existing housing at least keeps up. Inflation
really hurts the cash asset class, not real property.
|
Yes a most succinct comment:
The point really and the answer to this topic is that in times of rising inflation and rising interest rates, these holding the assets will come out best!
Although the rise in the asset value is offset by the value of a dollar (In real terms); the measured difference is against what a dollar can buy . . . in other words should be compared to cash.
Food for thought . . . as many investors are afraid to make an investment purchase because they fear inflation and rising interest rates.
The point they might be missing is that they will be worse off left holding the devalued cash.
Example: Late 1980's
Sure inflation and interest rates did go through the roof . . . and I personally did get ensnared in that cycle:
BUT the important thing to remember is that the value of assets more than doubled over the years preceding the peak in rates.
The extra value accrued will much MORE than offset the increased costs.
Regards,
Steve
|
