Buffett beginning to show that he doesn't know anything about deflation.

Warren Buffett is going to destroy his own legend before he passes if he doesn't just shut up right now.  Prechter's book predicted that this would happen: those who made a killing during the inflation will find that all their old rules and relationships no longer work very well and in some cases at all.  In today's case of foot in mouth, Buffett wonders aloud why everyone isn't flocking to buy overpriced homes saying that home construction is slower than he had anticipated.  Reading between the lines, that means its going the wrong way.

You see, Buffett thinks that what is ahead of us in massive inflation.  Thus, he says, take out a huge loan because you can afford it with low interest rates.  The inflation will wipe out your debt.  You can short the dollar like this....

But the dollar has been shorted for decades and now the demand for dollars is climbing.  We will see rising interest rates and a rising dollar  - a clear violation of a relationship that is cast in stone in the minds of many students of Ponzinomics also known as Keynesianism and currently taught under the title "macro economics".  Rising interest rates are supposed to slow down debt based spending, thus reduce the credit portion of the money supply.  Falling (and low) rates are supposed to produce a weaker dollar.  The big lie of these theories is that they believe that they can control the herd using these relationships indefinitely.  In truth, they appear to work until they no longer work and then boy don't they.

Interest rates will begin to rise simply because people will begin to fear that the US will default in some form or fashion.  At the same time, the dollar is rising because of all the dollar denominated debt in the world which is being liquidated or defaulted on.  This shrinks the money supply and strengthens the dollar.

Buffet's silly comments basically ignore the high cost of housing.  They focus on the monthly payment.  People, he thinks, will pay any price as long as the monthly is low.  Perhaps that is true but with record numbers of people leaving the work force (and not just retirees either), people are working to reduce their monthly spend.  I don't care if the interest rate is zero, the monthly payment on a $300,400,500,600+k  home is is no way "affordable" to the average young person who cannot get a good paying job.  These people are simply adjusting to the new reality that Mom and Dad's basement is actually not all that bad and certainly worth the price paid to stay there.

I hope Buffett is not as dumb as he sounds.  I hope that his billions were based on a sound understanding of how the economy really works.  I'd like to give him that benefit of the doubt.  But if this is true then the only reason he is flapping his gums is to try to trick more people into buying overpriced houses a the top.  A far better idea will be to let deflation ravages the price of the houses and while they are plummeting save your cash.  That way you will eventually buy the house for cash cut the banker out of the equation and not languish as a debt slave for the rest of your life.  How's that for a good strategy, Buffett?