Brace yourself for one of the greatest interest-rate surges in decades — beginning first in the long-term Treasury markets … later spreading to shorter term Treasuries … and ultimately enveloping nearly every loan, debt, credit, and money market instrument on the planet. This rise may not begin with great fanfare, nor will it immediately upset the apple cart of the economic recovery, but with the march of time, it WILL gain momentum and reach critical mass. Words: 614
In further edited excerpts from the original article* Martin D. Weiss and Mike Larson (www.moneyandmarkets.com/) go on to provide five reason why interest rates must rise and provide advice as to what to do about it:
1. The Growing RISK of Lending Money to Sovereign Countries
Naturally, the more that lenders distrust their borrowers, the more interest they must charge to offset the risk and right now, the distrust of sovereign debts is going through the roof!
2. Massive Federal Deficits in the United States
The bigger the deficit, the more Washington must borrow and the more it borrows, the more it must bid up the rate it pays.
If today’s massive federal deficits were merely a typical, cyclical phenomenon, we might be less concerned but nothing could be further from the truth! What we are witnessing now is a dramatic fiscal upheaval of historic dimensions. Except for those during major wars, today’s federal deficit is, by far, the largest in U.S. history as a percent of GDP and it’s more than TWICE as bad as the worst deficits during the Great Depression.
Direct implication: Unprecedented upward pressure on interest rates.
3. Washington’s Reliance on Foreign Lenders to Finance its Follies
Until the 1970s, the U.S. government rarely relied on foreign lenders for more than 10% of its privately held debt but today it relies on them to the tune of 51.4%.
Implication: Any international loss of confidence in the U.S. — in its economy, credit rating, or overall future — could make it that much harder for Washington to raise the funds it desperately needs to cover its gaping budget deficits, forcing it to bid even HIGHER interest rates.
4. Inflationary Forces and Fears!
While Fed Chairman Bernanke says he’s not too worried about rising consumer prices right now, a growing minority of Fed governors say the true inflationary signs are being temporarily covered up by depressed housing costs. Moreover, Bernanke is conveniently ignoring the elephant-in-the-room monetary explosion he himself has engineered.
From September 10, 2008 to March 10 of this year, he has increased the nation’s monetary base from $850 billion to $2.1 trillion — an irresponsible, irrational, and insane growth of 2.5 times in just 18 months – making it, by far, the greatest monetary expansion in U.S. history. And all for the sake of perpetuating America’s addiction to spending, borrowing, and the wildest speculations of all time.
End result: Powerful inflationary pressures and worries, naturally driving interest rates higher.
*http://www.moneyandmarkets.com/surging-interest-rates-ahead-part-i-38722?FIELD9=1 (Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. To view archives or subscribe, visit http://www.moneyandmarkets.com.)
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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