The New Monetary System Paradigm and Its Effect on Real Estate

The U.S government debt has been increasing exponentially (26.5 trillion as of Jun 2020).

Putting it into perspective:

  • $3.7 trillion printed in nine months (9/30/2019 – 6/30/2020). That is a 14.2% increase.
  • During the ongoing fiscal year, which ends in two months on 9/30/2020, the government has printed almost double of what was printed in 2009.
  • If you add all the years from 1991 dating back to 1789, the first fiscal year for the U.S. Government.  That is 288 years which, only accounts for 13.84% of the total debt to date.  That is less than what was printed in the past nine months.
U.S Debt Yearly Change

Current events have forced the hand of governments around the globe to take unprecedented actions to keep their economies afloat.   But, in doing that, the limits of what can be done with the current monetary system are being put to the test.

We may be close to a new monetary system paradigm change. 

Technology – The younger generation is used to transacting with their phones. Send a check? Cash? What?…   They will be more inclined to pay and receive money within their phones using apps that are already integrating with cryptocurrencies. 

Eurodollar –  This is one of the reasons why the dollar continues to have such high demand (in addition to the foreign debt).  But, the growing frustration by the U.S sanctioned countries is fueling their pursuit to become independent from the dollar.   Not an easy feat, but eventually likely to happen.  Also, worth mentioning that China is already testing its new digital currency.

The next crypto wave is coming.

Foreign Debt –  No other country in the world can offer the freedom, security, and the rule of law that the United States can provide.  For this reason, foreign countries continue to purchase U.S debt payable in dollars.  This is yet another reason for the increased dollar demand.

The United States is in a unique position where the government can continue to print money with minimal effects on inflation (currently under 1%).  Luckily, oil prices are also low at the moment, which usually causes inflation to go down.

Thoughts for the future.  Cash continues to get diluted right in front of our eyes.  And the possibility of a decreased dollar demand could create a sizable inflation effect. For these reasons, it’s a good idea to stay hedged by investing in real estate.