I don’t talk much about my finances, but I will tell you that I’m in the process of refinancing a couple mortgage loans down by 1% each. The interest savings is tremendous, making me very positive about consumption trends going forward as 10 other people I know are also refinancing. It behooves you to at least call your local bank and check their latest rates.
It does make me wonder with the strength of the stock markets lately, how the bond market can still be so frothy to provide such record low interest rates. Do remember that the higher treasury bond prices go, the more yields fall. Could there really be deflation on the way? I highly, highly doubt it but the bond market is telling us otherwise.
To humor our minds, lets say there is deflation on the horizon. What would you do with your spending habits? You’d probably stop consuming due to the assumption that whatever it is you want to buy will be cheaper in the future. As a result, you’d hoard cash and de-leverage. Bingo, that is exactly what plenty of folks are doing, including myself. This self perpetuating mentality is very damaging to economic progress. In addition to delaying consumption, you will probably seek ever higher yields. With the 30 year treasury yielding 4% right now, it sure looks like a buy compared to only 2.85% on the 10 year.
When talking about deflation, keep in mind that money is simply a medium of exchange. The more money currency you have, the better as the strength of your currency improves vis a vis the goods and services which it can buy. Frugality really is en vogue again, and I just can’t wait until Samurai September when I spend the whole month buying nothing!
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