Mortgages Can Protect You Against Future Hyper Inflation — Rolling Your Own Inflation-Protected Annuity Is A Great Example
August 19, 2020 by Laurence Kotlikoff
The Fed is printing vast sums of money to lend to borrowers who may not be able to repay. This may lead to very high inflation, which would wipe out the real values of retirees’ fixed nominal pension or annuity payments. Taking out a larger mortgage can hedge this risk since inflation will water down the real value of mortgage payments. What’s lost from the left pocket can be gained by the right.
The Fed has printed almost $1.5 trillion dollars in the past year to prop up businesses in our depressed economy. The Fed calls this asset purchases, not money creation, because it’s buying IOUs in exchange for the green backs it prints (actually, electronically creates). The Fed says that all that extra money it has printed — 27 percent of the traditional M1 measure of the money supply — will be returned to the Fed when the borrowers make repayment, leaving M1 where it was before COVID struck.
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