Today’s Best Investment May Be to Borrow : Finance: Excesses of the ‘80s are past. “Money is cheap but nobody wants to borrow it,” one observer says.

In this age of financial prudence and retrenchment, a few advisers have made a daring suggestion: Perhaps the time is ripe to borrow some money.

Yes, they realize that debt was a 1980s kind of idea that went out with all the other excesses of that era. A central theme of the ‘90s to date has been cleaning up the mess.

But as time has passed, circumstances have changed considerably. Now that interest rates have fallen to their lowest levels in a generation, and many old loans have been paid down or refinanced, some observers say the balance has shifted in favor of the borrower.

“Money is cheap but nobody wants to borrow it,” says James Grant in his Grant’s Interest Rate Observer commentary. “Maybe it’s time to volunteer.”

Evidently people are starting to do just that. Edward Yardeni, chief economist at the Wall Street firm of C.J. Lawrence Inc., notes that the pace of consumers’ installment borrowing, after falling steeply from 1989 through 1992, has since rebounded.

“Auto loans are up $8.7 billion over the past 12 months after falling sharply during most of 1991 and 1992,” Yardeni says. “Revolving credit usage (such as credit cards) is also moving up.”

Meanwhile, the government reports that housing starts, an economic indicator closely tied to people’s willingness to borrow, reached a 3 1/2-year high in August.

Nobody is predicting, or advocating, a new borrowing binge--especially considering how long it has taken to recover from the last one. Still, there are signs that the recovery has been progressing well of late.

According to the American Bankers Assn., delinquencies on bank installment loans to consumers fell to a nine-year low in the second quarter of this year.

As of June 30, consumer loans 30 days or more overdue made up 2.06% of the total, down from 2.31% at the end of the first quarter and 2.60% at midyear 1992.

“Consumers have been on a debt-reducing diet and it shows in their figures,” said James Chessen, the ABA’s chief economist.

Given that admirable progress, why would people want to burden themselves once more with new borrowing?

Like many other things, credit can be useful and beneficial if consumed judiciously and in moderation.

“One of the key common sense rules of the money game for any debtor is: Issue long-term, fixed-rate debt when interest rates are low,” says Jeff Thredgold, chief economist at the bank holding company KeyCorp.

Companies do that when they sell bonds. Individuals do it when, for instance, they replace an adjustable-rate mortgage on their home with a fixed-rate one.

Economic expectations also can play a big part in people’s decisions. In the late 1970s and early 1980s, for instance, borrowing was all the rage, even at double-digit interest rates.

The rationale was that inflation was also running at a rapid two-digit rate, enabling borrowers to repay with dollars that were less and less valuable.

Today inflation has fallen to the neighborhood of 3% a year, removing a big inducement to borrow.

But the presumption that inflation will stay subdued is already reflected in current interest rates, Grant says. What’s more, he argues, it may prove to be too optimistic.

“We must all decide for ourselves if a world of paper money and competitive currency devaluation is an environment conducive to long-term price stability and permanently low interest rates,” he says. “If we conclude not, we must decide what to do about it.

“Let us say that government policy worldwide will soon become even more reflationary. If so, the best investment would not be a bond but the opposite of a bond. One would not want to lend but to borrow.”