by Karl Denninger
Market-Ticker.org
There’s a lot of misinformation and worse flying around — and given that after doing things that destroy your health errors here are the second-most difficult to recover from and can ruin you financially, this is truly sad.
First, interest rates on loans are not historically high, nor unreasonable. In fact they’re bog-standard up-the-middle from a historical point of view in an economy with an actual 1-2% inflation rate. The rate of short-term (that is, less than one year) borrowing in a 2% inflation economy with a 2-3% productivity improvement (historically about average) should be about 5%, and that for longer-term money about 7%. Why? Because time has value; go ask any 60 year old how much they’d pay to have the last 20 years back.
In a normal market the average ownership period is about 7 years. You have a 30 year loan as the “usual” but the average ownership is 7 years; this is why most mortgages are based on the TNX, or 10 year Treasury rate — its the closest large-liquidity government bond issue.