This is the best time to borrow money. In all of history. From the Washington Post. Link
This is the best time to borrow money in recorded history.
That's right: Interest rates are lower today than they were when FDR or Napoleon or Henry VIII or Genghis Khan or Charlemagne or Julius Caesar or Alexander the Great or even Hammurabi were around. Or, if you want to put a year on it, lower than at any time since the ancient Sumerians made the first loans, payable in either silver or grain, back in 3000 B.C.
That, at least, is what Bank of England chief economist Andy Haldane found when he went digging through the historical record. Now, it is true that rates almost got all the way down to zero during the Great Depression, but they have gotten all the way down there today. Indeed, interest rates are all-but-zero in the United States, United Kingdom, euro zone, and, for the last 16 years now, Japan. Those are economies that, in nominal terms, make up more than half of the global economy.
What has happened now that hasn't happened at any other time going back before Moses? Well, we not only have an aging economy that doesn't need as much investment as before, but also a global economy that just had a global crisis. Put those together, and you get zero interest rates. That is just another way of saying that interest rates depend on what economists call loanable funds and liquidity preference. Think about it like this. Like anything else, the price of borrowing money should depend on the supply and demand of money that is ready to be lent out. But in the last 15 years, that supply has gone up as Asian countries have started saving more, and demand has gone down as Western countries have started investing less now that their labor forces are aging and shrinking. The result has been that interest rates have kept dropping from their already low levels.
But that's not the full story. It turns out that the price of borrowing money is only mostly like the price of anything else. That's because there isn't just a demand for borrowing money, but also a demand for money itself. When people get scared, say, when a housing crash almost brings down the entire financial system, they don't want to borrow money or lend money or do anything else with it. They just want to hoard money. The problem, though, is that if nobody is spending, then the economy will shrink — which will only make people want to put their money into super-safe places, like government bonds, rather than taking any kind of risk. Interest rates, in other words, will fall even more.
Now, financial crises aren't new, but global ones are. The only other time that has happened was in the 1930s. When everyone around the world becomes risk averse, you can't even export your way out of trouble since there's nobody to export to. Interest rates fall to zero and get stuck. It took the stimulus program known as World War II —which nobody wants to repeat — to climb out of this economic trap in the 1930s, but there isn't anything to do so now. Interest rates, after all, were already on a downward trajectory before the housing crisis turned to a financial crisis, and, on other side of the Atlantic, a euro crisis. And those trends, like the baby boomers hitting their golden years, are only accelerating now. So it might be awhile before interest rates are much more than zero — in fact, if Sweden is any guide, rates move down into negative territory before they move back up.
It turns out Polonius was wrong. You should be a borrower right now.
Any expressed market opinion is my own and is not to be taken as financial advice
This is the best time to borrow money. In all of history. From the Washington Post. Link
This is the best time to borrow money in recorded history.
That's right: Interest rates are lower today than they were when FDR or Napoleon or Henry VIII or Genghis Khan or Charlemagne or Julius Caesar or Alexander the Great or even Hammurabi were around. Or, if you want to put a year on it, lower than at any time since the ancient Sumerians made the first loans, payable in either silver or grain, back in 3000 B.C.
That, at least, is what Bank of England chief economist Andy Haldane found when he went digging through the historical record. Now, it is true that rates almost got all the way down to zero during the Great Depression, but they have gotten all the way down there today. Indeed, interest rates are all-but-zero in the United States, United Kingdom, euro zone, and, for the last 16 years now, Japan. Those are economies that, in nominal terms, make up more than half of the global economy.
What has happened now that hasn't happened at any other time going back before Moses? Well, we not only have an aging economy that doesn't need as much investment as before, but also a global economy that just had a global crisis. Put those together, and you get zero interest rates. That is just another way of saying that interest rates depend on what economists call loanable funds and liquidity preference. Think about it like this. Like anything else, the price of borrowing money should depend on the supply and demand of money that is ready to be lent out. But in the last 15 years, that supply has gone up as Asian countries have started saving more, and demand has gone down as Western countries have started investing less now that their labor forces are aging and shrinking. The result has been that interest rates have kept dropping from their already low levels.
But that's not the full story. It turns out that the price of borrowing money is only mostly like the price of anything else. That's because there isn't just a demand for borrowing money, but also a demand for money itself. When people get scared, say, when a housing crash almost brings down the entire financial system, they don't want to borrow money or lend money or do anything else with it. They just want to hoard money. The problem, though, is that if nobody is spending, then the economy will shrink — which will only make people want to put their money into super-safe places, like government bonds, rather than taking any kind of risk. Interest rates, in other words, will fall even more.
Now, financial crises aren't new, but global ones are. The only other time that has happened was in the 1930s. When everyone around the world becomes risk averse, you can't even export your way out of trouble since there's nobody to export to. Interest rates fall to zero and get stuck. It took the stimulus program known as World War II —which nobody wants to repeat — to climb out of this economic trap in the 1930s, but there isn't anything to do so now. Interest rates, after all, were already on a downward trajectory before the housing crisis turned to a financial crisis, and, on other side of the Atlantic, a euro crisis. And those trends, like the baby boomers hitting their golden years, are only accelerating now. So it might be awhile before interest rates are much more than zero — in fact, if Sweden is any guide, rates move down into negative territory before they move back up.
It turns out Polonius was wrong. You should be a borrower right now.
Hmm.. of course, the worst time to be in debt is if your primary source of income is under threat.... the 1930's is not a period i would hafe wanted to be deep in debt.
Hmm.. of course, the worst time to be in debt is if your primary source of income is under threat.... the 1930's is not a period i would hafe wanted to be deep in debt.
And it appears Peter and the original author have missed that point completely. To recognise opportunity borrow in a low IR environment and Ignore the risk that created l that opportunity is insanity. You can't say record low interest rates is a perfect environment for all in sundry to borrow because the reason why they are low is because of irresponsible lending and debt fuelled binges.
If they are at record lows it is because something has gone very very wrong in the economy and respective economies.
And it appears Peter and the original author have missed that point completely. To recognise opportunity borrow in a low IR environment and Ignore the risk that created l that opportunity is insanity. You can't say record low interest rates is a perfect environment for all in sundry to borrow because the reason why they are low is because of irresponsible lending and debt fuelled binges.
If they are at record lows it is because something has gone very very wrong in the economy and respective economies.
Yes.
Am still checking the occasional property ... yesterday jas a look around one property... sale just fell overmfor 2nd time in 2 months... finance clause.
And it appears Peter and the original author have missed that point completely. To recognise opportunity borrow in a low IR environment and Ignore the risk that created l that opportunity is insanity. You can't say record low interest rates is a perfect environment for all in sundry to borrow because the reason why they are low is because of irresponsible lending and debt fuelled binges.
If they are at record lows it is because something has gone very very wrong in the economy and respective economies.
It's not irresponsible lending because the people are lending to themselves. If you were entrusted with a third party's money, and you lent it to a gambler, then that would be irresponsible lending. But in this utopia, we are simultaneously borrowing from and lending to ourselves. How can that be irresponsible?
If the left hand gives something to the right hand, is the left hand being irresponsible? There is no third party anymore. Anything goes.
If anything, there is irresponsible borrowing. If we are borrowing from ourselves, then shouldn't we ask the question, 'why should I borrow this (paying interest to financiers in the process) when I could simply grant it to myself?' Do the financiers add value, or take value? If they take value then you would be irresponsible to feed them.
Hmm.. of course, the worst time to be in debt is if your primary source of income is under threat.... the 1930's is not a period i would hafe wanted to be deep in debt.
Even in the 1930's a vast majority of people had jobs, many of them secure. Those who did have the money and secure incomes would be insane not to take on more risk and take advantage of the situation and many did.
Where one person see's risk another see's opportunity.
Even in the 1930's a vast majority of people had jobs, many of them secure. Those who did have the money and secure incomes would be insane not to take on more risk and take advantage of the situation and many did.
Where one person see's risk another see's opportunity.
Actually, that is quite illustrative of how the typical mind works. And then there are the other scenarios:
1. People see opportunity in the others desperation for opportunity (closely linked to the suburbs and an important driver in our economy. Ticket clipping, hawking, etc)
2. People who see opportunity in risk (a more independent train of thinking, which usually operates in a space far from the suburbs, but there is a relationship as typically the suburbs are more exposed to risk than anytime in history)
deluded
25 Sep 2015, 11:45 AM
If anything, there is irresponsible borrowing. If we are borrowing from ourselves, then shouldn't we ask the question, 'why should I borrow this (paying interest to financiers in the process) when I could simply grant it to myself?' Do the financiers add value, or take value? If they take value then you would be irresponsible to feed them.
The opportunity lies in the financier's ability to convince you of value. If you opt out, that is an exercise in freedom you have.
Hmm.. of course, the worst time to be in debt is if your primary source of income is under threat.... the 1930's is not a period i would hafe wanted to be deep in debt.
Interest rates have nothing to do with it, the best time to take on debt is when you can use it to generate a big ponzi return. Which is not now, the ponzi has run its course.
Mike
25 Sep 2015, 01:10 PM
Even in the 1930's a vast majority of people had jobs, many of them secure.
Utter bullShit! Those that did have jobs were constantly facing wage deflation and the threat of dismissal if they complained. You're an idiot mike.
"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." John Stuart Mill
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy