In the past, I have recommended to the readers to eliminate debt. That still goes… However if you borrow money for income producing purposes, it is a different type of borrowing. For example, borrowing for a new car which is an asset of declining value puts you at risk if something negative happens. On the other hand, borrowing money for viable inventory that produces sales is not as risky and becomes part of the cost of doing business. As you sell the inventory, you retire debt and produce a profit which more than offsets the interest expense of the inventory carrying costs.
Lowering your leverage is a wise move especially now. The Swiss National Bank removed its Swiss Franc “peg” against the Euro last week. In 13 minutes, people who were leveraged in this area of the currency market suffered huge losses and some were wiped out. The Swiss Franc increased 30% in about 780 seconds and no one could do anything about it.
This is serious! The central banks are now in self-preservation mode and there is surely more volatility on the way.
In the U.S., I suspect dogs could now get a car loan based on the easy credit available. A Honda Finance executive comments:
I have written several warnings about the economic challenges ahead. It seems 2015 has started out with a “Swiss Chocolate” Black Swan. Expect more black swans on the horizon.