Near the close of World War II, the world's leading nations began developing a global fiscal plan to create a stable post depression era economy.
This plan reached fruition at the Bretton Woods conference.
The net of this conference was that the U.
S.
dollar pegged to the gold standard at $35 per ounce would serve as the global reserve currency.
Global growth eventually unhooked the gold standard approach and more freedom eventually was allowed for currency value fluctuations, but the key status of the dollar as the reserve currency and International Monetary Fund as a stabilizing capital source were put in place.
This is critical to U.
S.
real estate and indeed the entire economy because this is the single factor that is likely to prevent further huge deflationary losses in the real estate market in the coming few years.
Because of the United States position as the reserve currency, the nation has greater capacity to take anti deflationary actions than any other economy in the world.
Much of this action centers between the offering and providing of cash as debt to the U.
S.
government and to the banking system.
Because of this, as the developing nation's economic growth strengthens and the rest of the world's economic position strengthens there will be strong upward pressure on interest rates.
If the United States were any other nation, this factor would be irresistible.
However, this isn't the case.
The U.
S.
Federal Reserve has tools available unlike any other nation as the reserve currency holder and manager.
Why is this important? Because when rates begin to escalate, there are still substantial amounts of commercial and consumer real estate and businesses locked in variable rate debt with near term resets.
The impending rate increase is going to create a second default wave and place pressure on the economy.
If all things were equal, this would lead to another round of sharply devaluing assets within the next 24 to 36 months.
All things are not equal.
We are a part of the post World War II reserve currency nation.
The federal reserve will be able to take significant steps to hold rates down (not entirely but substantially) and ensure that debt capital remains available.
As a result, the credit availability will slow but not cease.
In fact, credit availability may be higher than it currently is.
Terms will be much less friendly, borrowers will suffer, and values will weaken and slide but not fail dramatically.
For investors with cash, this is not as happy a result as otherwise would occur.
However, in general this implies a prolonged buying opportunity and very strong values for investors in a gradually stabilizing if weak economic condition.
Some economists predict otherwise, but as outlined here their predictions assume the economic factors can overpower the Federal Reserve's capacity to put a break on the trends.
The fact that the United States saw growth at all since 2007 is a testament to the likelihood that the Fed's strength is underestimated in such projections.
That said, the economic forces in play that these economists point to are very real and investors who can spot the irregularities Fed action creates will have the opportunity to gain outsized returns.