TonyCinTX

If Housing Were Priced in Gold

@jrainspe:

Oh, I can imagine it, and I can imagine that if the UN printed money we would have the same problem as all countries have now; they can print money at will. And tying it to some "basket of goods" is no good either, because that would also be subject to political intrigue in determining how to weight the basket, what to include in the basket, and everything else.

And you are wrong; pet rocks and virtual pets have the ultimate real and fair value: They were entertainment. Will you next argue that anything that counts as entertainment has no real value? Not movies, books, water parks, plays, professional sports, music, good clothes or good restaurants? About 75% of people's spent income is "wasted" according to your lights, because they spend it on making their lives more fun and pleasant.

A universal currency is not just pointless, it would be harmful because it provides a single point for corruption and manipulation. At least now, we can measure inflation, corruption, and manipulation by one currency trading against others.

If Housing Were Priced in Gold

Actually the value of the home is in its utility, like any other machine (e.g. car, laptop, lawn mower), not what one can sell it for. After all, you are going to have the expense of living somewhere no matter what. It is incorrect to say sell your home and rent: Your mortgage payment does not rise with inflation or fluctuate with demand, your apartment rent will never decline.

A rise in Gold signals inflation of the dollar, and inflation is either caused by or will produce salary increases. But your mortgage payment is FIXED, so while the number remains the same, as a percentage of income it is reduced by inflation. We also have the situation that home buyers tend to be younger and will earn more as they grow into their careers. This is why anytime you talk to somebody with a twenty year old mortgage their payment seems a ridiculously low fraction compared to typical apartment rents for the same square footage.

The author fails to consider that much of that free 300 ounces of gold would have been eaten by skyrocketing apartment rents rising with inflation; he assumes the apartment rent for the same square footage will just cost the same as the mortgage payment was in 2001. Good luck with that.

I am not arguing that money cannot be made on bubbles if you know when they are coming and when they are ending; far from it. But in times of inflation, a fixed-rate mortgage payment is your friend.