Hardly anyone argues the fact that the federal debt and deficit are too high and getting worse. The Federal Reserve can monetize excessive government debt by purchasing government bonds or other securities directly from the Treasury Department, injecting money into the economy in the process. This is often done as a way to support the economy during times of economic stress, such as during a recession or financial crisis. However, now it may be the only option for the government to continue excessive borrowing.
However, there are limits to how much debt the Fed can monetize before it becomes problematic. One concern is that excessive monetization of government debt can lead to inflation, as the increased money supply can lead to rising prices. In extreme cases, this can lead to hyperinflation, which can have devastating economic consequences.
Federal debt monetization refers to the process by which a central bank, such as the Federal Reserve in the United States, purchases government bonds in order to inject liquidity into the economy. This can have various effects on the real estate market, and there are a few reasons why someone might choose to own real estate in this context:
Low interest rates: One effect of federal debt monetization is that it can lead to lower interest rates. This can make it more affordable to borrow money to purchase real estate, which could lead to increased demand for properties. Generally this is an accepted possible outcome to monetization of debt, however, since this time the monetization also comes with established high inflation, whether or not we return to ultra low interest rates is up for debate.
Inflation hedge: When the central bank injects liquidity into the economy, it can lead to inflation. Real estate is often seen as a good inflation hedge, as property values and rents can increase in response to rising prices. Therefore, owning real estate could help protect against inflation. Think long term low interest (relative) debt costs to the ability to increase rents.
Portfolio diversification: Owning real estate can be a way to diversify an investment portfolio. If an investor already holds other types of assets that may be impacted by federal debt monetization, such as stocks or bonds, owning real estate could provide a hedge against any negative effects.
Potential for appreciation: Real estate values can appreciate over time, particularly if the property is located in a desirable location. If the central bank's actions lead to economic growth, this could support the real estate market and lead to increased property values.
It's worth noting that there are also risks associated with owning real estate, such as the potential for fluctuations in property values and the costs of property maintenance and management. As with any investment decision, it's important to carefully consider the potential risks and rewards before making a decision.