Tuesday, May 5, 2009

Inflation or Deflation

Every so often I like to post a light hearted item. Hat tip to Greg Mankiw for featuring this funny video of Merle Hazard and Bretton Woods singing a country song about if we're heading for inflation or deflation.

Either scenario is bad for the mortgage market---If there's inflation, mortgage rates will rise causing slower principal repayments and possibly lower property values in the short term (as the monthly payments increase b/c of higher interest rates). If there's deflation, consumers will postpone spending b/c their dollars will buy more stuff in 1 year than what it will buy them today.

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