It’s a good thing our government is pouring tons of money into the economy right now. Otherwise, the COVID-19 pandemic sweeping our nation surely would be causing even more damage.
I’m no expert on monetary policy and have never played one on TV. But even I am beginning to wonder if these actions might create another problem for senior living operators: high inflation.
Inflation, shimflation, you say? Well, here’s a true story that might offer some perspective:
When we purchased our starter home in 1990 (the one we still live in, by the way), we caught a lucky break. Turns out yours truly was eligible for a VA loan with a 2% interest reduction over anything else we’d been offered. We practically danced for joy when we discovered we could actually pay a rock-bottom interest rate of … 10%.
That’s right, a 10% loan in 1990 was a good deal, or at least a good deal for us. Friends congratulated us for our rare, good fortune. Of course, that number is laughable now. Pay even 4% interest on a mortgage loan these days and casual acquaintances will snicker behind your back. Good friends will strongly urge you to keep looking.
And what is the real difference between then and now? In a word, inflation.
The inflation rate then (5.4%), was nearly triple what we are seeing now (1.5% to 2.2%). And although some are warning that deflation might be a bigger short-term challenge, a risk certainly exists that higher inflation once again could rear its ugly head.
Why is that? Well, as you may remember from that boring econ class you took many years ago, our government has two basic tools to limit inflationary growth. The first is monetary policy. That is not an issue here, as banks are essentially tapping into zero percent loans right now. But the second, controlling the money supply, could become a real doozy.
To put things as simply as possible, the higher the money supply, the higher the inflation risk. And as we’re seeing, Washington is turning on the money spigot as never before.
As a senior living operator, you stand to lose in multiple ways should inflation rates suddenly spike. For starters, the cost of procuring loans would escalate.
And as the value of money decreases, savings for things such as infrastructure improvements, employee pensions and your own retirement would lose value. There are other insidious things as well, but these are the big-ticket items.
What are the odds we might have to deal with soaring inflation rates? Perhaps not terribly high at the moment.
Then again, what were the odds six months ago that our economy would be on life support today?