A lender contacted me last weekend about refinancing my home. It seems interest rates have fallen roughly half a point since I first acquired the liability I call home. But half a point isn’t quite enough for me to go through the pain of refinancing a mortgage, so I told the lender I’d sit tight for a while. In response, the lender tried to educate me about impending interest rate hikes in December and that I’d be throwing lots of ‘Benjamins’ away if I failed to take advantage of this opportunity. Ultimately, I think I’ll wait to refinance until a little while later, and here’s my rationale for doing so…
I’m not an economist. I am simply a middle-aged guy doing his level best to save and prepare for a retirement…of sorts…sometime in the fairly distant future. And I struggle to understand the intricacies of macroeconomics much less how to save for my own retirement at the microeconomics level. The differences between microeconomics and macroeconomics seem closely akin to the differences between physics and quantum physics, except in reverse. Ok, what? Like, I am trying to understand how the decisions made by ‘Big Whigs’ at the macroeconomic level affect how well I can manage the money I am personally in charge of (microeconomics). I am pretty sure macroeconomic decisions impact me directly, like in the case of my home refinance opportunity, but how exactly those decisions impact me and even how and why those decisions are made are not quite so clear. So I am very interested in the ‘big picture’ and how Federal Reserve decisions, with regard to interest rates, impact my life, your life, and our present and future.
Today, the Federal Open Market Committee (FOMC), chaired by Janet Yellen, met to discuss the possibility of rising interest rates before year’s end. The FOMC seem to say roughly the same nebulous things at each meeting, which makes me wonder about what is truly driving their decisions. I don’t think the Federal Reserve cares much about people with microeconomic concerns (i.e., concerns such as paying for milk and gas each month much less the mortgage). Why would they? They are not elected officials of the people of the United States. So here’s how I think interest rates are going to play out…
Take a look at the following chart of interest rates in the US since interest rate data have been collected:
The chart shows, as Grant Cardone has so eloquently pointed out to his listeners, a significant trend…to ZERO!! In fact, interest rates have pretty nearly done bottomed-out already. So maybe we get another tiny bump on interest rates in December, but past that, I think we are headed into negative interest rate territory. I agree with Grant Cardone’s analysis that there is no way interest rates can go up.
I believe the key to understanding the Federal Reserve’s guidance on interest rates is driven not by the strength of the US Economy and Inflation, but instead by the National Debt. Whoever holds cash benefits the most from rising interest rates. Right now, many countries hold alot of cash, in the form of notes or I.O.U’s, sold by the United States to pay for things like Wars, seeking-out Weapons of Mass Destruction in Iraq, and then Reconstruction and keeping the Government open for business. The result is a mountainous debt (thanks to former President Bush (Republican) and current President Obama (Democrat)). If interest rates do go up, these foreign note holders get more and more leverage as their notes become more valuable. Simple math says you stand to collect more money if someone is willing to pay you 5% for the dollars you hold over 1%, for example, when your note becomes due. If interest rates go down, cash and I.O.U’s become less and less valuable. In fact, if interest rates go down enough, say into negative territory, people and entities holding cash may have to pay someone else for the privilege of holding cash. Think about that! The bank could conceivably charge you money to keep your cash in their bank! You know, kind of like 401k programs do now…sort of.
So, rates may go up some in December, although I’m not sure why they would. If the real drivers of Federal Interest Rate Policy is the minimization of National Debt obligations, then interest rates cannot go up until the US National Debt is greatly reduced. Therefore, I think the FOMC is going to lower interest rates even more, and I think they may even go into negative territory soon. The upside of interest rates going negative is that you might get paid to have a mortgage?!?!
I think there is still some time to consider mortgage refinancing.