The Beautiful De-Leveraging

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Ray Dalio calls it a “beautiful de-leveraging.” We don’t see the beauty in it. But we admire it for what it is – a natural and necessary response to the grotesque debt build-up of the last half century. It may not be beautiful, but it is doing its work as best it can under the circumstances.

US Households are lowering their debt levels. Businesses are hoarding cash. The private sector, generally, is getting itself into better shape. All very natural…and all things in nature have a beauty, of sorts.

It doesn’t hurt that interest rates are so low. Even the price of gasoline is going down. In this sense, the Great Correction itself is helping…beautifully. The whole world economy is slowing down, lowering prices for energy and housing – two of the biggest items in the household budget.

The way to cut debt is to first cut expenses. Then, you have more money available to pay off your loans. And it’s fairly easy to cut expenses when interest rates are so low.

In 2005 and 2006 we advised Dear Readers to sell their overpriced real estate and rent. Now it’s time to reverse the procedure. At today’s rates…and today’s prices…it’s time to buy.

Here’s why:

In some areas, house prices are down 50%

In those very same areas rents have risen.

At 3% (which you can get on a 15-year fixed rate mortgage) your monthly mortgage payment might be only HALF your rent payment. So you can save money there.

Then, you deduct the interest from your taxes.

And then, the Fed gives you a bonanza when its monetary inflation finally turns into consumer price inflation…or even hyperinflation. Your mortgage balance could be reduced 10%…30%…80% in just a few months.

In other words, you get paid to wait for the feds to wipe out your mortgage!

Cut your expenses. Get into cash. Remember, our ‘Crash Alert’ flag is up. And a lovely correction is underway.

Tomorrow: how the vandals in Washington and at the Fed are defacing the “beautiful de-leveraging.”

Regards,

Bill Bonner
for The Daily Reckoning Australia

From the Archives…

The Physical Gold Market – From the Weak to the Strong
2012-05-18 – Greg Canavan

Why JP Morgan is Playing the Same Old Rigged Game
2012-05-17 – Eric Fry

Why Greece Can’t Afford to Stay in the Euro
2012-05-16 – Dan Denning

A Big Oops at JP Morgan!
2012-05-15 – Dan Amoss

Preparing For China’s Growth Slowdown With The ‘Energy Hub’ Portfolio
2012-04-14 – Dan Denning

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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