The Era of Very Low Inflation and Interest Rates May Be Near an End

Same thing in Canada's larger cities (if not a doubling in much less than 10 years), yet we're told the change in the housing component of the CPI is < 2%. Lies, damn lies, and statistics.

From what I've seen inflation has been very high for the past 20 years, but has not been evenly distributed at all. The deflationary pressures of offshoring, automation, technological advancement, and device convergence have caused tech, appliances, and gadgets to drop dramatically in price, creating the illusion in many sectors of low inflation or deflation. Offshoring and automation have also held wages down and kept consumer product and service prices from inflating much. The Internet has completely collapsed the price of media (music, TV, news, etc.) too. If you're looking at these things then inflation looks low.

Tuition, health care, housing, and energy on the other hand have all inflated quite a bit. Housing is the big one. In some markets it's at the level of "real estate hyperinflation," rising to absolutely ludicrous 8-15X median income multiple prices. There's also been a lot of asset and stock price inflation and bubbles in things like trendy tech and cryptocurrencies can be considered secondary symptoms of a lot of money sloshing around.

I've heard the present condition described as "in-deflation": deflation in everything you make and in therefore labor, inflation in everything you need such as health care and housing/rent. My hypothesis is that this results from an impedance mismatch between inflationary industrial-era economics and monetary policy and deflationary information-age pressures. Both high technology and globalization are extremely deflationary. We did a ton of QE to re-inflate the economy after 2008 but since high tech and globalization were such powerful deflationary pressures the only place all that money could go was real estate, stocks, and speculative bubbles.

In any case they've pumped so much money into the economy we may now be about to see a little bit of wage growth.

Most of the global economy is loaded up on debt: Japan, China, the US, large parts of Europe. These days it's the exception when a country has a modest debt context, whether at the government level, corporate level, or household level.

Countries that we normally think of as very well off, such as Denmark, Sweden and the Netherlands are among the most indebted people on earth in terms of household debt to income. They can't afford much higher interest rates at all, it would collapse their housing markets and shatter their household finances.

Australia is in the same boat, two years ago nearly 1/2 of all new Australian mortgages were interest only mortgages; over the last 10 years, the average has been about 35% of all new Australian mortgages have been interest only (in a nation where their housing market is 4x the size of the economy; by comparison, the US housing market is 1.5x the size of its economy). As of a year ago, in total around 39% of all outstanding Australian residential loan balances were interest only. [1] For those that recall the US real-estate bubble, that's a terrifying figure; the US interest-only share of the market during the crazy years of the real-estate bubble was single digits (5-8%). Australia is currently taking action to try to counter this, which is rocking their market presently. [2]

The solid gains Canada made in their household wealth figures over the last decade? Almost entirely from their real estate bubble, which has produced a housing market that as a % of GDP is 2/3 larger than that of the US (the Canadian housing market is 2.5x the size of their economy, up from about 1.6x in 2007). They also can't afford significantly higher interest rates.

New Zealand is similar to Australia, their housing market is 4x the size of their economy. The UK's housing market is 3x the size of their economy, or twice the ratio of the US. These countries are all fragile when it comes to higher interest rates on mortgages.

Even the Swiss are in terrible shape, their household debt as a percentage of GDP is 50% higher than the US ratio.

In the US, its households are in reasonably good shape on debt; US household debt to income figures are the best they've been in decades, essentially the lowest the US has on modern record. Its corporations have loaded up on debt over the last ten years, and of course the Federal Government has taken on immense debt over the same span of time. The US Government simply can't afford 4-5% interest rates on its soon to be $30 trillion in public debt; which is another way of saying: in the US we are never returning to normal interest rates, not under any circumstances. The Fed will go into perpetual QE mode, as Japan has, to guarantee that.

Germany is a particular stand-out among high income nations when it comes to having low government debt, no real estate bubble, and no serious household debt to income ratio problem.

[1] https://i.imgur.com/2Z0mzou.png

[2] https://www.bloomberg.com/news/articles/2018-04-15/tougher-l...