Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: LLCF who wrote (52925)	9/2/2004 5:18:10 PM
From: energyplay	Respond to of 74559

Lower interest rates can make it MUCH easier to pay off debt, so much so that there is actually a deflation risk. Example - Our Joe SixPack takes out a 200k loan for a house in 1994, 8.0% interest, pays 2,000 per month. Pay off in 30 years. This year and next few he pays about $400 in principal. Next few years he will likely add over $500 in credit card debt each year. Ten years later, even after taking 30k out on a re-fi he ref-fis again to owe 210k at 5.5% If he pays 1900 per month, he pays off in xxxx (about 16 years). <--- number to be calculated. He pays down over 10,000 in principal this year, and the next few years. Even if he adds 2,000 in credit card debt each year, lots of debt is going out of the system. If those debt holders re-loan the money, it will drive rates down even more. 1) Payoff is closer than when he first got the loan. 2) $10,000 of debt gets destroyed this year.