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THE REAL VALUE OF AMERICAN REAL ESTATE Molson asks: what's safe when fiat fails? A great question. We unfortunately have more films on alien invasions and killer robots than we do on fiat failures, so relatively few have thought through this scenario. But given that decades of accumulated borrowing is now finally coming due, it's worth modeling what happens when the dollar is debased to pay the unpayable debts: We'll focus on the question of whether real estate is really safe in the event of an American fiat crisis, but many of the concepts apply broadly to any G7 country in the midst of sovereign debt crisis. (1) First, the conventional wisdom is that gold, guns, and land are reliably valuable in a US fiat crisis. I'm not so sure. Gold can be stopped at TSA metal detectors. Guns are only truly useful when the state fails, in genuine Mad Max scenarios. And real estate is really not very safe in a failed state. (2) To emphasize that last point: in Soviet Russia or Maoist China or Kleptocrat California, real estate is really not very safe. All the homeless encampments, illegal aliens, anti-building regulations, and squatter laws in places like California have eroded property rights. Billions of dollars in real estate lies fallow as a consequence. Add to that the corruption of a failed state that takes infinite taxes but can't stop endless fires, and you get the Pacific Palisades. Worth billions on paper, burned to the ground in practice: (3) Much Blue American real estate is like that. Are you really bullish on New York City real estate in real terms, given its current leadership? Or Seattle, Portland, Chicago, LA, or Boston? The one thing keeping some of those economies afloat is tech money. But of course the governments of those places also want that tech money out. (4) Moreover, there are good reasons to think real estate should depreciate in real terms. For one thing, the Case-Shiller index shows America to be at the top of a nominal real estate bubble even more insane than the 2008 crisis: (5) For another thing, US real estate actually has been dropping in real terms, which is to say against a basket of Internet currencies and Internet companies: (6) For a third thing, there are also significant forces (YIMBYism and the like) which want to bring real estate prices down for good reasons, by making housing more affordable by building more. This is distinct from reducing real estate prices for bad reasons, by allowing it to become uninhabitable as per the Palisades. And it's also distinct from reducing real estate demand by simply reducing the number of people emigrating to the US, which is the policy of the right. But all of those forces (libertarian, left, and right) want to bring the real price of real estate down. (7) And that's a good thing, right? I mean...yes, in theory. But it does mean real estate may not be a good long-term store of value in an American fiat crisis, which was @Molson_Hart's original question. Neither gold (hard to transport), nor guns (only useful in Mad Max), nor US land may have that much real value in the long run. Particularly as the chaos we see online spills offline. Think the Pacific Palisades, but everywhere. (8) And there is another wrinkle. Powerful factions (NIMBYs, boomers) do not want US real estate to go down in real terms. They want number-go-up technology applied to their house, their ostensible store of value. And like every American, they're suffering from inflation, which is boosting their property taxes without actually increasing their resale value. (9) So the compromise "solution" may be that the nominal value of real estate goes up (via money printing) while the real value of the dollar goes down. The boomers get a high number on their house but no real value; the rest get not even that. And American real estate thus becomes more affordable if (and only if) you're outside the rapidly inflating dollar economy, by living in other countries or holding only hard currencies. (10) That is an unfortunate forecast, but very similar to what happened in Russia in the 90s after the end of the Soviet Empire. Very little within the Russian system was really safe. Safety came from getting outside the system, from exiting the failing system. America had a great 90s. But Russia had a tough 90s. Worth knowing what happened: https://t.co/CgKkvUK0FA