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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: LLCF who wrote (107095)6/6/2001 10:48:45 PM
From: GraceZ  Read Replies (1) of 436258
 
Just out of curiosity, what's wrong with falling prices??



Nothing, for some things, I love the fact that the same amount of Ram I paid $4,000 for years ago is now going for $29.

But, imagine for a minute that you just signed a thirty year mortgage on a house. The house sold for $250K and you borrowed $200 at 8%. At what point would the house be worth less than the mortgage if you have a modest deflation rate of say 4%? or 2%. I suppose interest rates wouldn't be 8% in a deflationary environment now would they. Maybe they'd be negative like they had in Japan. You make a little less money every year but so what? Everything is a little cheaper. That pesky mortgage payment stays the same though and now you can buy the same house for less than the mortgage left on the one you are in.

Better yet, ask someone in Japan why they don't want to borrow money even when the interest rate is close to zero.
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