Consumer vote with their wallets and so do the markets. It's quite fascinating to see markets for bond and interest rates at present. In less than two months, from beginning of January till when February ended kingdom valley Islamabad payment plan, 10 year Treasury Note yield had increased by a staggering 54.9 percent, from 0.91% to 1.41 percent, before briefly hitting 1.52% on the 28th of February. While this is happening, Treasury yields in other countries that are industrialized are significantly lower, including Germany with an unfavorable yield of -0.25% in its 10-year Treasury Bond.
Some economists claim that this seismic increase in the U.S. Treasury yields is due to the growing economy, the strongest underlying factor seems to be a anxiety about the possibility of an inflationary future in the United States attributed to current administration's appetite to create (borrow) to spend the money such as the addition of $2 trillion to the economic stimulus package. This is just the tip of the amount that was borrowed and pumped into the economic system by 2020 by the prior administration, including $1 trillion that remains uninvested.
As the late Senator Everett M. Dirksen used to say ""A billion here, a billion there, and pretty soon you're talking real money." However, we're talking about trillions of dollars here. What is trillion dollars? In simple terms, it's 1,000,000,000,000 or a thousand billion. Our total national debt in 2000 was only around 6 trillion dollars, now it is over $27 trillion and rapidly growing. Naturally, higher interest rates are also a higher cost for the servicing of our nation's debt.
Just to put things in perspective, to put things in perspective, our U.S. Gross Domestic Product (GDP), which is the entire monetary or market value of all products and services made within our borders, was $20.9 trillion at the end of 2021. Our total annual income tax revenue for the federal government amounts to approximately $3.5 trillion, or approximately 16 percent from our gross domestic product. So, our national debt far exceeds our national income. Do do we see a need for concern here?
Printing a lot of fiat currency as a long-term economic "solution" never brings good lasting results. If you're in doubt, examine Venezuela. It was once the wealthiest nation in Latin America, Venezuela is now one of the poorest ones, with an inflation rate so high that the currency isn't worth the paper it's printed on. How bad is the rate of inflation? It's only 2,685% by 2020.
For the average person these kind of number is such a huge amount that they appear to be absurd. But what do rising interest rates have to do with us, the common people? Certainly a higher cost of living, which includes higher home mortgage rates (home loans, equity lines of credit), which affect the cost of housing, as well as the price of consumer credit (credit cards and car loans), higher cost of student loans and so on. It will also cause more expensive prices for everyday items and services. Have you checked out the price of gas recently?
The increasing cost of credit will most definitely impact the housing market which will put downward cost on prices and its affordability. The housing market is essential to the overall health of our economy because it affects a variety of jobs as well as consumer spending, and the overall wealth of our nation.
One may contend that housing prices are due for a correction since prices increased during the pandemics were both extreme and not sustainable. This could be the case but higher interest rates will make this correction much more severe and longer-lasting.
In other words, at the time we started to see indications of a growing economic recovery, another presumably intended stimulus, or at least its huge scale and timing, could prove detrimental and counterproductive. The focus should be on wisely using the unspent "old" stimulus money, which Congress had approved earlier in the year, keeping rates at a low level and opening the economy while the initiatives to combat the disease grow and the Covid illnesses and deaths slow down.
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