Leverage

In financial circles, being “leveraged” means paying for things with loans.

I never thought I’d say this but right now, being leveraged to the eyeballs is good fiscal policy.

Inflation is close to 8% and rising rapidly, which means every day, your dollars are worth less.

So the money you borrow today, you don’t have to pay back with today’s money, you’ll be paying it back with tomorrow’s money, which is worth less. The things you buy with today’s money will be much more expensive in the future when you’re actually paying for it.

So it makes financial sense to borrow as much money as you possibly can and buy everything you might want now before it becomes much more expensive.

But, it’s important to do it now while interest rates are still low, because that’s about to change:

The Federal Reserve is expected to begin raising interest rates this week for the first time in three years as policymakers look to cool red-hot inflation, a move that comes at a precarious time for the U.S. economy as it confronts a continuing pandemic and a war in Europe.

Basically, the money you’ll be paying back for the loan will be worth much less than the money you borrowed in the first place. With interest rates low and inflation so high, you’ll actually be gaining value instead of losing it.

But when the Fed finally gets off it’s @$$ and starts raising interest rates, that dynamic is going to change.

Remember the ’70’s and ’80’s? I do. 21% interest on an unsecured loan was considered a good rate. Car loans were typically in the 12% to 15% range and mortgages were close to 10%.

Coming soon to a bank near you.

I’m glad I’ve got my fixed rate 5% credit card, my 2% mortgage and my 4% truck loan right about now. That’s why you always, always, always get fixed rate loans when the rates are low. People who took out variable rate mortgages to get that tempting 1.9% rate are about to get hammered…right at the time that they’re already struggling to buy groceries and keep gas in the tank.

Hey, maybe Mayor Pete was onto something. Maybe it really is a good time to buy that $44k electric car while the interest rates are still low and money isn’t yet completely worthless.

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