Jefferson’s post about refinancing his park reminded me of a saying whose author I can’t recall:“If you don’t know what’s coming, then you will never know it when it arrives.” (I suspect that the author was one of the Austrian macro-economists.) It is common knowledge that today’s interest rates are unusually low. In fact, the Federal Reserve’s overnight lending rate is 2%, although we all know that price inflation is substantially much higher. (I believe that the real, not the CPI, price inflation is above 10%.) Consequently, the cost of borrowing in real terms is negative, presently. This cannot be a long-term situation. The closer we get to paying the piper for our (actually, the government’s, the Fed.s, and Wall Street"s) previous sins, the more positive (the higher) the real interest rates will become. Remember Mr. Volker’s harsh, but temporarily effective, medicine to cure our previous inflationary imprudence?
Therefore, if Jefferson would do conservative refinancing today, for a longer than a 3 year balloon term, that refinancing should be very profitable for him. Also, paying the loan with depreciating dollars could be an additional profit center. Further, if the refinancing would provide him with additional non-taxable dollars, he would be in a position to invest in, say, precious metal coins, which are presently very cheap and are universally recognized as the only real money that is not simultaneously an obligation on anybody-- another profit center