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Notice I didn’t say Trump is right to say interest rates shouldn’t be going up; I said he is right to be worried. And, for sure, interest rates will be going much higher.
There are multiple factors at play.
First of all, the Federal Reserve under Obama was extremely corrupt; they entered the U.S. bond market as a participant, as an artificial buyer, to keep interest rates very low, to finance President Obama’s obscene rise in the federal sovereign debt. There is no way Obama could service the debt if interest rates would have risen to a market rate.
You see, liberal policies don’t work. They retard economic growth. Therefore, to keep the economy barely moving under the rule of our Dear Leader Obama, the government had to cheat. They cheated by pumping large amounts of money into the system. Think of it like a constant sugar high to keep you going during an all nighter studying for that hard exam…except expand that exam out to eight years.
The average level for the U.S. 10 year note is around 5%. We are just now getting back to 3%. We are still several hundred basis points from just average! Every one percent interest rate rise requires several hundred billion in debt service costs. The United States of America cannot afford to service the debt it now has, or the federal budget will go mostly to paying interest, much less the trillions of debt scheduled to come on the books.
The other factor is the economy is now booming, now that Trump has taken off the restraints heavily loaded onto American business via Obama’s overregulation and his socialist policies. With the growth rate in GDP rising exponentially at the moment, money becomes more expensive – interest rates rise. This is just natural economic reality.
Another factor is that with America approaching $30 trillion in liabilities, just in sovereign debt, the market is getting nervous. When market participants perceive more risk, meaning they start to get worried whether the U.S. has the will, or the ability, to service, much less pay back the principle of this enormous debt, they will demand more money to take on that risk – meaning interest rates naturally go higher.
Economic weakness begats military weakness. This has happened over and over again throughout history, from the Roman Empire, to the British Empire, to the Weimer Republic.
My hope is that in Trump’s second term, he will find the will and the negotiating talent, to put America back on a sound financial footing. After all, he is, the king of debt.