On Monday July 23, 2012, Louis Cammarosano, General Manager of HomeGain, was a guest on the Real Estate 360 Live radio show on The Big Talker 1580 WHFS AM, hosted by Ryan Sloper.
Listen to the show.
Part 1 (14:42)
Ryan discusses the Spanish debt crisis. Ryan and Louis discuss the low interest rates of German and US bonds. Louis notes that the low rates highlight investors’ demand for “safety” even though yields are below the stated official inflation rate. Louis notes that because rates are artificially low, it is good for those who want to take out long term low interest mortgages.
Louis and Ryan note that the US interest rates are being kept low because the US government can not afford to pay its debt if interest rates were higher. Louis notes that the US treasuries becomes by default the safe haven because the US is the largest sovereign and also because gold, silver and real estate (arguably safer investments) are more thinly traded and less widely held.
Louis notes that even municipal bonds are being preferred by investors seeking safety even though municipalities have limited means of raising revenues and are bankruptcy risks.Louis notes that Spain’s 7%+ interest rates are an example of what a sovereign must pay if its investors are concerned about its inability to pay principal and interest back.
Louis notes that the US rates are not near 7% because the US can print the difference. Louis notes however by doing so becomes in effect a default as the investors received debased currency in return. Louis notes that low interest rate punish savers who would help their economy by savings and that low interest rates encourage consumption which does not help the economy because people consuming are doing so with borrowed money.
Louis notes that the low interest rate environment helps the banks, the government and the rich. Louis notes that perhaps deflation is preferable for those on fixed incomes. Louis notes when prices go higher the only way to afford higher prices is to take out a loan.
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