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Interest Rates Set to Rise Again, Provoking More Inflation

By June 12, 2023Commentary

Thanks to the endless spending binge of the Bidementia administration, the US Treasury has to sell at least one trillion dollars in new debt in the next couple of months.  That is a lot of debt to dump on an already saturated market.  Watch the 10 year Treasury note very carefully.  If you do, you will see recent interest rate increases are creeping back up to the high of about 4.2% established last October, up substantially from the recent low of 3.3% in February.  Interest rates are now at about 3.8%, and the impending debt flood has bond traders anxious.  You may recall that financial institutions and others who bought US debt at far lower interest rates took a big hit when rates rose, because the face value of debt falls when interest rates rise.  So we could have another round of angst as big debt holders have to again mark down the value of those holdings.

More importantly, there is a lot of debt of all kinds in the US economy, and interest rates on the debt are largely tied to the rates on US debt.  Interest is the price of money, and higher interest rates are a form of inflation, and those higher rates drive inflation in most sectors of the economy and paying more interest means companies and individuals have less money to invest or to use to purchase goods and services.   I am actually happy to see the recession deferred, along with other economic pain.  Be great from my perspective if it hits in January or even March of next year, so people are living with the consequences of insane progressive policies.  Might cause them to rethink what these dunces are doing to quality of life.

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