MAKING SENSE -- August 23, 2011 at 10:17 AM ET
Making Sense: Is 'Rent Now, Buy Later' a Good Idea? And Other Answers to Your Questions
Paul Solman answers questions from NewsHour viewers and web users on business and economic news on his Making Sen$e page. Here are Tuesday's queries.
Name: Dale Myers
Question: Given the free-fall in home prices, what do your experts think of "rent now, buy later"? Are we about to lose the mortgage interest deduction?
Paul Solman: I own, but I see no problem with "rent now, buy later." Families are doubling up; baby boomers may as well. That implies a lot less upward pressure on prices.
As to the tax deduction on a second home, I'd bet that it will be ended sometime in the next few years, but I wouldn't bet much. On a first home? I kind of doubt it, but your guess is probably as good as mine. And it is a "tax loophole." "The deduction of interest on owner-occupied homes" will be worth $600 billion over the years 2012-2016, according to the President's Office of Management and Budget.
Question: The only problem with monetizing is the depreciation of the currency.
Paul Solman: "Only problem"? But yes, that's what has been happening, slowly but surely. That's what it means when we implore China to revalue its currency: make the dollar relatively less valuable. That is depreciation.
Depreciation via "monetizing" (the Fed creating more money) seems the likely path as America adjusts to the fact that it is a less rich country than was supposed -- if still a rich one, by world historical standards. When economists like Ken Rogoff of Harvard propose an increase in inflation to 4 - 6 percent to address our current economic woes, depreciation is what they have in mind.
Question: Did you know that the University of Texas System just bought $60 BILLION in gold bars? Why hasn't this, and all of its ramifications, been reported on?
Paul Solman: According to Bloomberg, which did report on it, the purchase was for $500 million. Added to a previous stake in the system's portfolio, total holdings now top $1 billion.
The decision to turn the fund's investment into gold bars was influenced by Kyle Bass, a Dallas hedge fund manager and member of the endowment's board, Zimmerman said at its annual meeting on April 14. Bass made $500 million on the U.S. subprime-mortgage collapse.
"Central banks are printing more money than they ever have, so what's the value of money in terms of purchases of goods and services," Bass said yesterday in a telephone interview. 'I look at gold as just another currency that they can't print any more of."
...The endowment, which oversees funds held by the University of Texas System and Texas A&M University, has 6,643 bars of bullion, or 664,300 ounces, in a Comex-registered vault in New York owned by HSBC Holdings Plc.
Bloomberg will link to the Google Earth URL as soon as they find out where the gold is stashed. (Okay, I made that part up...)
For Rent, For Sale photo by Gary Gardiner/Bloomberg via Getty Images. Gold image by flickr user BullionVault.