Is Hyperinflation On The Horizon?

[yos9694]

Can we all agree that debt (especially excessive debt) is deflationary?

Certainly not. Deflation can have a devastating impact on existing debt, but to claim that debt causes deflation is at most debatable.

Rising interest rates is a huge threat regardless. The interest cost on the Federal $28 Trillion debt is very low right now but if rates rise that cost goes up fast. Unless you cut spending, that means borrowing more to meet the interest cost- and at higher rates. The upwards spiral continues until buyers lose interest in our bonds and/or we default on bond payments. Or we turn into a Zimbabwean economy where the government buys its own bonds with printed money and the dollar becomes worthless.

CBO projections include these concerns.

[ExGingi]

Certainly not. Deflation can have a devastating impact on existing debt, but to claim that debt causes deflation is at most debatable.

Rising interest rates is a huge threat regardless. The interest cost on the Federal $28 Trillion debt is very low right now but if rates rise that cost goes up fast. Unless you cut spending, that means borrowing more to meet the interest cost- and at higher rates. The upwards spiral continues until buyers lose interest in our bonds and/or we default on bond payments. Or we turn into a Zimbabwean economy where the government buys its own bonds with printed money and the dollar becomes worthless.

CBO projections include these concerns.

So allocating ever increasing sums to debt service rather than productive uses isn't deflationary?

[yos9694]

So allocating ever increasing sums to debt service rather than productive uses isn't deflationary?

Are you predicting future budgets will cut spending in order to pay interest costs? That assumes a high level of fiscal responsibility

[ExGingi]

Are you predicting future budgets will cut spending in order to pay interest costs? That assumes a high level of fiscal responsibility

No.  The can will be kicked down the road further than anyone of us can imagine, and then there will be some kind of (global) reset. I have no idea what it will look like. Many people consider gold a hedge against said reset.

[yelped]

https://www.nytimes.com/2021/06/08/business/like-kind-real-estate-tax-loophole.html

More stupid moves. The one thing that allows someone to climb the ladder they want to remove in order to invest in social programs which is designed to keep people on the bottom rung of the ladder.

[CountValentine]

No.  The can will be kicked down the road further than anyone of us can imagine, and then there will be some kind of (global) reset. I have no idea what it will look like. Many people consider gold crypto a hedge against said reset.

Better?

[Kobe Bryant]

https://www.nytimes.com/2021/06/08/business/like-kind-real-estate-tax-loophole.html

More stupid moves. The one thing that allows someone to climb the ladder they want to remove in order to invest in social programs which is designed to keep people on the bottom rung of the ladder.

Behind a paywall.
Better not be 1031 exchange.

[Lurker]

https://www.nytimes.com/2021/06/08/business/like-kind-real-estate-tax-loophole.html

More stupid moves. The one thing that allows someone to climb the ladder they want to remove in order to invest in social programs which is designed to keep people on the bottom rung of the ladder.

Under the Biden proposal, the deferral in any one year would be limited to gains of up to $500,000 for single taxpayers and $1 million for married taxpayers.

I don't think anyone making gains of over $500k (or $1M for married couples) can be considered "climbing the ladder" anymore. Most of the people this would affect haven't seen the bottom rungs in a while.

The effort would generate $19.5 billion in tax revenue over 10 years, according to the administration’s estimates, and help pay for its $1.8 trillion proposal to help American families attain a middle-class lifestyle.

I don't understand these numbers. First of all, this is like throwing pennies at the national debt. It's not helping cover anything, let alone a $1.8T bill. Second, if the tax benefit would be less than $2B/yr, how much would this really hamper the real estate business? It doesn't seem to be a high enough cost to slow things down significantly. It also doesn't seem high enough to make it a target for reform.

Ultimately, this is what confuses me the most:

“If I want to sell my IBM stock and buy AT&T stock, I have to pay taxes on that sale, even though I’m swapping one stock for another,” Mr. Rosenthal said. “Why do we favor real estate over other like-kind investments? At the end of the day, like-kind exchanges are disproportionately benefiting the wealthy versus the wage earner.”

This is a very solid point, IMO. What logical reason is there not to tax all like-kind reinvestments the same? Either we want to encourage growth on all levels, or we want everyone to pay taxes on everything they make. Singling out one sector, especially one which may have a relatively high bar of entry, doesn't make sense to me.

[Lurker]

Behind a paywall.
Better not be 1031 exchange.

It is. https://archive.is/EQr69#selection-651.0-651.331

[aygart]

It is. https://archive.is/EQr69#selection-651.0-651.331

of course it is!

[avromie7]

I don't think anyone making gains of over $500k (or $1M for married couples) can be considered "climbing the ladder" anymore. Most of the people this would affect haven't seen the bottom rungs in a while.

I don't understand these numbers. First of all, this is like throwing pennies at the national debt. It's not helping cover anything, let alone a $1.8T bill. Second, if the tax benefit would be less than $2B/yr, how much would this really hamper the real estate business? It doesn't seem to be a high enough cost to slow things down significantly. It also doesn't seem high enough to make it a target for reform.

Ultimately, this is what confuses me the most:

This is a very solid point, IMO. What logical reason is there not to tax all like-kind reinvestments the same? Either we want to encourage growth on all levels, or we want everyone to pay taxes on everything they make. Singling out one sector, especially one which may have a relatively high bar of entry, doesn't make sense to me.

The reason it would be so low is because most who are taking advantage of it now will just hold their property and not sell. The effect on the real estate industry is all the transactions that don't happen.

[Lurker]

The reason it would be so low is because most who are taking advantage of it now will just hold their property and not sell. The effect on the real estate industry is all the transactions that don't happen.

If there's money to be made, transactions will happen. The taxes may make the margins smaller, but it won't shut down the industry. I think that it will push more money into other industries, which is great for overall growth.

[ExGingi]

If there's money to be made, transactions will happen. The taxes may make the margins smaller, but it won't shut down the industry. I think that it will push more money into other industries, which is great for overall growth.

As long as step-up in basis exists, there's a strong incentive to keep on deferring the tax with 1031 exchanges. Tax rules and loopholes create all kinds of market distortions.

[Joe4007]

So allocating ever increasing sums to debt service rather than productive uses isn't deflationary?

In the private sector, sure. But how is government debt deflationary if they just print more to service it?

[yos9694]

No.  The can will be kicked down the road further than anyone of us can imagine, and then there will be some kind of (global) reset. I have no idea what it will look like. Many people consider gold a hedge against said reset.

So just to clarify, this word "reset" means default, right?

And "kicking the can" means borrow while continuing to spend, including borrowing to make interest costs?

[Lurker]

https://www.foxbusiness.com/lifestyle/chipotle-raising-menu-prices-employee-pay

[grodnoking]

https://www.foxbusiness.com/lifestyle/chipotle-raising-menu-prices-employee-pay

"the company is looking to hire 20,000 employees at its estimated 200 restaurants across the nation"

That math does not add up for me. 100 extra workers per restaurant?!

[yelped]

If there's money to be made, transactions will happen. The taxes may make the margins smaller, but it won't shut down the industry. I think that it will push more money into other industries, which is great for overall growth.

Not so simple. First, there are many small players where a 20% tax hit will encourage them to keep the property and not bother selling and getting something bigger/better which they well renovate (jobs/neighborhood) and then continue doing the same. Second, this affects many players in the RE industry thrive from every transaction, title, lawyers, etc as well as handymen etc.

[CountValentine]

"the company is looking to hire 20,000 employees at its estimated 200 restaurants across the nation"

That math does not add up for me. 100 extra workers per restaurant?!

Look at the headline "Chipotle increasing menu prices to offset rising employee wages". Not any mention of the cost of goods to make their products going up.

The math is each employee is going to work 2hrs/day and 10hrs/wk. 

[Lurker]

Not so simple. First, there are many small players where a 20% tax hit will encourage them to keep the property and not bother selling and getting something bigger/better which they well renovate (jobs/neighborhood) and then continue doing the same. Second, this affects many players in the RE industry thrive from every transaction, title, lawyers, etc as well as handymen etc.

What would you consider a smaller player?