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I could buy that devaluation via inflation is coming, and maybe even that the government prefer it, but I’m skeptical that they have the ability to actually do

I could buy that devaluation via inflation is coming, and maybe even that the government prefer it, but I’m skeptical that they have the ability to actually do that. Rather it’s more like the fed pushes its buttons and prays.

johnvanommen 8y ago
It's already happening, but the Fed isn't doing it. Here's what's happening: 1) Trump put tariffs on Chinese imports 2) The Chinese retaliated by devaluing their currency, to negate the effect of the tariffs 3) This had the net effect of strengthening the US dollar That's why home prices are flat-ish in 2018.
- prewett 8y ago
  How does a strong dollar affect home prices in the US? The exchange rate only matter when importing something, and you aren't importing anything when you buy a house in the US denominated in USD. Besides, the RMB hasn't been devalued (as in the standard definition, which is creating a new currency and dropping a few zeros). It has risen from 6.29 RMB to 1 USD in April to 6.86 today, but that is +10% and the tariffs are +25%. But a year ago the RMB was 6.68, so the year-over-year increase is +2.6%. Of the four assertions, only #1 is correct.
  - mywittyname 8y ago
    Labor prices must be set in USD. So during a strong dollar, the cost of labor relative becomes the dominant factor in the price of new houses, since material goods can be imported. This makes it difficult/impossible to reduce the cost of a new house by just building smaller houses, since the marginal cost in terms of labor is lower, i.e., installing 30 outlets in a house costs much less than twice the cost of installing 15; only the material costs are doubled. This is ignoring the fact that a strong dollar makes real estate in the US a much, much more attractive investment. Not only do you get a decent appreciation in real value if you own in a desirable areas, but you also enjoy the relative appreciation in value relative to the currency you buy goods in. Chinese investors holding real estate in the coastal USA have done quite well in the past decade.

johnvanommen 8y ago

It's already happening, but the Fed isn't doing it. Here's what's happening: 1) Trump put tariffs on Chinese imports 2) The Chinese retaliated by devaluing their currency, to negate the effect of the tariffs 3) This had the net effect of strengthening the US dollar That's why home prices are flat-ish in 2018.

prewett 8y ago
How does a strong dollar affect home prices in the US? The exchange rate only matter when importing something, and you aren't importing anything when you buy a house in the US denominated in USD. Besides, the RMB hasn't been devalued (as in the standard definition, which is creating a new currency and dropping a few zeros). It has risen from 6.29 RMB to 1 USD in April to 6.86 today, but that is +10% and the tariffs are +25%. But a year ago the RMB was 6.68, so the year-over-year increase is +2.6%. Of the four assertions, only #1 is correct.
- mywittyname 8y ago
  Labor prices must be set in USD. So during a strong dollar, the cost of labor relative becomes the dominant factor in the price of new houses, since material goods can be imported. This makes it difficult/impossible to reduce the cost of a new house by just building smaller houses, since the marginal cost in terms of labor is lower, i.e., installing 30 outlets in a house costs much less than twice the cost of installing 15; only the material costs are doubled. This is ignoring the fact that a strong dollar makes real estate in the US a much, much more attractive investment. Not only do you get a decent appreciation in real value if you own in a desirable areas, but you also enjoy the relative appreciation in value relative to the currency you buy goods in. Chinese investors holding real estate in the coastal USA have done quite well in the past decade.