We all know the rules of Monopoly (whether we play by them or not), but what happens when the rules are changed mid game?
Imagine a game that is underway with about half the properties sold, and houses and hotels are going up. Suddenly the bank gives all the players another sum of money on top of the initial hand out. What happens next? Everyone can pay more for each property so the price increases.
What doesn’t change is the rent because it is fixed by the property’s rent card. As a result of the rent staying the same while the property becomes more valuable its yield will fall. The earning power of the property has not changed (or rather it just takes more capital to earn the same return) although many will think it has. Nor has the mortgage value gone up.
Asset inflation simply means that the same profits become more expensive to buy. Is this what 10 years of Quantitative Easing has delivered, or is the profit pool finally growing? No one knows.