The people who vote with their wallets and the markets too. It's quite fascinating to observe how the market for bonds and the interest rates today. In just two months, from the beginning of January until at the close of February Kingdom valley Islamabad payment Plan, 10 year Treasury Note yield had increased by an astonishing 54.9 percent, going from 0.91 percent to 1.41 percent, following a brief reaching 1.52 percent on the 28th of February. Meanwhile, treasury yields in other countries that are industrialized are much lower, such as Germany with negative yields of -0.25 percent for its 10 year Treasury Bond.
Although some economists believe that the soaring rise in the U.S. Treasury yields is due to the growing economy however, the most significant cause is a worry about an imminent inflation within the United States attributed to current administration's desire for printing (borrow) as well as spend funds, which includes the additional $2 trillion of the new economy-building stimulus plan. This is on top of the amount that was borrowed and then pumped to the market in the year 2020 by the previous administration, which included $1 trillion that remains uninvested.
The late senator Everett M. Dirksen used to say ""A billion here, a billion there, and pretty soon you're talking real money." But we're talking about trillions of dollars here. What is the value of a trillion dollars? It is, in simple terms: 1,000,000,000,000, or a thousand billions. The total national debt in 2000 was around 6 trillion dollars. Today, it's over $27 trillion and is rapidly increasing. Naturally, higher interest rates also translate into higher costs for paying off our nation's debt.
To put things into the context of to put things in perspective, our U.S. Gross Domestic Product (GDP), which is defined as the market or monetary value of all products and services that are produced within our borders, was around $20.9 trillion by 2020. The total income tax revenues from the federal government is around $3.5 trillion, or around 16 percent from our gross domestic product. So, our national debt far exceeds our national income. Do you see a problem in this?
Printing a lot of fiat currency as an economic "solution" never brings good long-term outcomes. If you are unsure, take a take a look at Venezuela. The country was once the most prosperous within Latin America, Venezuela is today one of the smallest ones, with an inflation rate so high that the currency isn't worth the paper it's printed on. What is the rate of inflation in Venezuela? Just 2,685% in 2020.
For the average person, these kind of number is so massive that they seem absurd. What do the increasing interest rates translate to us, the ordinary people? Certainly, a higher cost of living, which includes higher interest rates on mortgages (home loans and equity lines of credit) that affect the cost of housing, as well as the price for consumer credit (credit cards and auto loans) and higher costs for student loans and so on. This will also result in an increase in the cost of everyday goods and services. Have you noticed the prices of gas lately?
The rising cost of credit will definitely impact the housing market and put price pressure on it and its affordability. The market for housing is crucial to the general health of the economy, as it impacts many jobs as well as consumer spending, and the wealth of our nation.
It is possible to argue the market for housing is in need to a correction, given that the price rises during the pandemic were extreme and not sustainable. This could be the case but higher rates of interest will make this correction more severe and last longer.
Just as we began to see indications of a growing economic growth, another good-intentioned stimulus is announced, or at the very least, its massive magnitude and timing could be detrimental and counterproductive. It is important to focus prudently utilizing the un-used "old" stimulus money, that Congress had approved earlier in the year, keeping rates at a low level and opening the economy as the vaccine efforts grow in strength and the Covid illnesses and deaths slow down.