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Cheaper Dollars — Interest rates are going up. Even if the 10-yr yield’s slow creep towards 3-3.5% has stalled in the last week or so, we will eventually watch the yield curve transform, especially as the Fed raises rates.
This means a lot of things for a lot of different people.
- Valuations will adjust downward
- Growth stocks will look less attractive
- Cost of credit increases
- Mortgage rates will rise
- Housing inventory will increase
- Home prices will steady and potentially allow you to buy something for less than $100k over asking
I’m simplifying, just hitting the highlights here for you. Of course, there’s more to it, but you get the gist.
On a personal finance note, rising rates and an inflationary environment can have a subtle silver lining. It’s not exactly a unicorn with a f*cking rainbow shining out its a$$, but there are some things to consider.
If you own a home, it’s very likely that your mortgage APR is way lower than inflation right now.
If you have student loan debt, it’s also likely that your consolidated interest rate is also lower than this most recent 8.5% CPI print.
 For millennials and the elderly of the Gen Z, mortgage debt and student loans are probably your biggest bills to pay.
Student loans in the US total more than $1.75 Trillion, with a capital f*cking T. (See what it looks like.) Comparing that to credit card debt, that’s more than double the roughly $850bn floating around on our personal consumption swipey cards.
Occasionally you’ll hear a joke about the Fed and the Treasury working together to “monetize the debt.” This means that you turn the money printer on so loud and so hard that the dollars that the government owes are devalued, i.e., inflation kicks us all in the teeth, and the government pays back its debts with dollars that are worth less than the ones it borrowed in real terms.
This means that you turn the money printer on so loud and so hard that the dollars that the government owes are devalued, i.e., inflation kicking us all in the nuts and the government paying back its debts with dollars that are worth less than the ones it borrowed in real terms.
Well, that’s kind of happening to us right now if you have low-interest rate debt.
If you bought a pickup during Truck Month at 0%, you’re paying your gas guzzler off with cheaper dollars.
If you have a 3.5% 30-yr fixed-rate mortgage, you’re paying your home off with dollars today that are worth less than the ones you borrowed.
You get the idea.
This idea is just something to consider when selecting whether or not to just make the minimum payment each month. I know what I would do.
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