Debt Consolidation Financing - What Are The Effects Of Inflation and Interest Rates
Inflation makes tomorrow's money potentially worth less than today's, that makes borrowing more appealing to borrowers, but lending less attractive to lenders in order to compensate, lenders increase interest rates, since among other items, they too know that the dollars they will be re-paid next month are potentially worth less than the ones they loan out today.
Therefore, a vicious cycle is established, as prices increase more people including companies, discover themselves needing to borrow more if they are to buy the items they require cars, home improvements, business equipment etc this tends to raise interest rates even further, since there is now more demand for borrowed cash, more demand given a set supply tends to increase prices, in this situation the price (this is the interest paid) is the total price of borrowed money.
Since inflation is principally caused via governments whether through high borrowing themselves or deficit spending or real printing of more currency or issuing more credit, there's little an individual can do to change the method, all one can do as a citizen is recognize the reasons and advocate sound policies.
However, as a borrower there's much one can and had better do when considering the problem, after all governments don't continually increase inflation, if they did as occurred in the late 1970s, for instance interest rates would finally reach a level where there are loud demands to do something urgently, when they do something it invariably means closing down the spigot this is reversing or at least slowing the items listed above.
Those actions have a definite impact on everyone looking to borrow money, just as the inflation did, that deflation may also lower rates encouraging more borrowing, however it also causes cash borrowed today to be worth less than they would be tomorrow, hence you are repaying a loan with money that are potentially worth more tomorrow if you kept them (by saving or investing) than they are today.
Therefore, when you look into borrowing you have to try to make a guess, just as the banks do about which way inflationary or deflationary pressures are most likely to go, that is a hard job for even professional economists, thus how may a layman be expected to do that with any rationality? While there is no sure method there are a few indicators that are available to everyone, it used to be that gold and silver were realistic indicators, but that's no longer correct since the dollar is no longer related to any hard commodity, nonetheless there are one or two that can be beneficial.
Two inflation indicators to be considered.
Since oil is a very common commodity that is tied to a large percentage of production costs of other items, as the price of oil increases inflation is most likely to heat up a little, hence look at the price of oil options to see whether prices are expected to be higher or reduced in the future.
The price of bond options going up is also an indicator, in this case it hints that professional dollar managers are betting interest rates will change sharply over the coming years, the relationship is very complex and borrowers would do better to consult a specialist.
Please keep in mind that a dollar today is a measure of the cost of todays goods and services, just as a dollar tomorrow is a measure of that cost tomorrow, but when borrowing cash you're buying dollars today to spend today, however will pay them back in the future, how much these dollars are worth when you pay these back is a measure of what that loan will in reality cost you.
Related Tags: debt consolidation, debt help, debt free, debt consolidation solution, debt consolidation financing
Ian Wilkie is a published expert author of many Debt Consolidation Help articles and owner of - My Debt Consolidation Solution your one-stop online resource for Debt Consolidation Financing.
Your Article Search Directory : Find in ArticlesRecent articles in this category:
- The Beginning of the Cataloging Code
The first significant cataloging code was published in 1841. The realization that cooperation and s - In the Lap of the Gods 24
Life moved on. Lily became well liked by both students and staff because of her cheerful outlook on - In the Lap of the Gods 23
Does fate decide the future? Is it all mapped out for us, predestined, or can we influence what com - Write Your Memoir: How to Write About What Troubles You the Most
Everyone has a story to tell, and unfortunately those stories aren't always pleasant. What makes me - How Crafty Word Order Can Instantly Improve Your Writing
by Philip Yaffe I am usually very reticent about offering writing tips. Unless they are linked to - You Say Grandpa, I Say Deda
I was born with two grandmothers but only one grandfather. In nature's rules of familial supply and - My Russian American Dichotomy
I was a Russian girl and an American teenager. I had no choice about the first but I tried very har - In the Lap of the Gods 22
This is just an explanation for those who have read some of the other Chapters of, "In the Lap of t - Write a Book: 8 Reasons You Should Do it
Studies have shown that 82% of people want to write a book, but few of these actually ever achieve - Book Review: the Book of Common Prayer
Book Review: The Book of Common Prayer, "My carry-with-me copy is this size, and I recommend it for
Most viewed articles in this category:
- Real Estate Investment - Investing In Commercial Properties
As in any other type of investment, its obviously advisable to do your research well so that the pro - Taking Care Of Acne Prone Skin With Proper Skin Care Products
Although acne has been largely associated with teeners and puberty, the condition is not only confin - Do I Really Need Eight Hours Of Sleep Each Night?
What if you were told that there is no definitive answer for why we need to sleep? Your initial reac - How to Improve Your FICO Credit Score
If you didn't know this already, having a good credit score is more important than having a lot of c - 10 Tips for a Magnificent Memory
"Where did I leave my keys?" "What did I come in here for?" "Your glasses are on top of your head!" - Things You Might Like To Know About Card Companies
If you have a regular income and are 18 or over then you may be able to get a credit card. You will - Bad Breath in Babies and Toddlers
If your baby or toddler has had bad breath lately, not to worry. There are plenty of things you can - Starving College Students No More
The majority of today's college students are extremely Internet savvy. In fact, many of those studen - Cosmetic Surgery Financing: How Can You Get It?
Cosmetic surgery, a branch of plastic surgery, can be quite expensive, especially if you are plannin - Article Marketing, Improve Your Ranking With Links
Article Marketing, without a doubt remains the best free formula for attracting website traffic. At