The Coming Bust or the Coming Boom?

17.06.2021

As the world comes out of the pandemic, Americans are experiencing a phenomenon that has not happened since 1970’s. Throughout history, when the economy recovers from a crisis, the recovery takes years. But this one was different because the economy was artificially shut down by the government. So, the recovery is unusually fast.

The United States personal savings rate leading up to the pandemic was steady at around 7% for the last 30 years. In April 2020 it jumped to 33% as people no longer were able to take trips, attend events or even dine out.

Then rates went through the floor, and the government dumped trillions into the economy. Even as recently as February of this year the savings rate was still well above the average at over 13%.

This has led to a potent combination, that is finally rearing its head in the form of inflation. The government would have you believe the CPI is relatively low, but the basket of items used to determine the CPI is dangerously outdated.

Low interest rates, high savings rates, trillions of dollars injected in the economy, combined with people itching to get out of their home is a perfect storm for inflation.

Home prices are going up at rates never seen before. Everyone is wondering if this is sustainable.

The Biden administration is already trying to find a solution for the rise in home prices. They have suggested changing zoning laws to allow for more units. This could take years to sort out.

There is one thing the government can do to stem the tide of inflation in the short run. Raise interest rates. The 10-year treasury is at 1.43% at the time of this writing, and the Federal Funds Rate is 0.25%

Lenders are finally coming out of hibernation and lending close to pre-COVID levels. And borrowers need to take advantage of this whole rates remain low. We might not be in this low-rate environment for long.

Call me to discuss how.

Mr. Wright works with several lenders and specializes in arranging finance solutions that best matches your goals.

For more information on current rates or to discuss a project please contact Casey Wright at the Rincon Group. 415.622.7450 | casey@rincon-group.com