Interest Rates

Of all the different elements of the economy, the direction of interest rates is most important. That’s why, as the editors of Profit Confidential, we expend a considerable amount of our time analyzing and providing guidance on interest rates. We believe that the unprecedented debt the U.S. has accumulated will eventually result in foreign investors demanding a better return on U.S. Treasuries. Too many U.S. dollars in circulation will also eventually force interest rates to rise.

Economics 101 suggests inflationary pressure builds during periods of low interest rates. The demand usually increases when people both borrow and consume more. As the price of goods and services is directly correlated with demand, it increases—resulting in inflation.

To tackle inflationary pressures, central banks increase interest rates. Why? Because once they increase interest rates, it is supposed to do the opposite of lowering the rates—forcing people to save and cut back on discretionary spending.

Following a 30-year down-cycle of interest rates in the U.S., we are on the cusp of a new 30-year up-cycle in interest rates; a move that could cripple the government and the economy. This is mainly because the government has added too much debt to its balance sheet, and the Federal Reserve has printed significant sums of money.

After phenomenal amounts of bailouts were doled out, followed by non-stop government spending, the U.S. national debt rose 76.2%—from $9.2 trillion in 2008, to $16.3 trillion in 2012. (Source: TreasuryDirect, last accessed November 27, 2012.)

It gets worse. The current administration said it would keep the budget deficit below $1.0 trillion. It hasn’t. For fiscal 2012, the federal budget deficit was $1.1 trillion, slightly below the $1.3 trillion deficit recorded in 2011. (Source: U.S. Department of the Treasury, October 12, 2012.) What’s more, 2012 marked the fourth consecutive year in which the U.S. government experienced an annual deficit above $1.0 trillion. As a percentage of gross domestic product (GDP), the U.S. government’s budget deficit for the year 2012 stands at seven percent.

Along with skyrocketing government debt, the Federal Reserve has printed $3.0 trillion. Where did the $3.0 trillion come from? It’s not backed by gold. It was simply created out of thin air. And, the presses continue to print an additional $85.0 billion a month!

Looking at an even bigger picture, between January 2000 and September 2012, the amount of U.S. money in circulation (the “M1 money supply”) has increased 112%, or $1.25 trillion. That’s a lot of money printing.

Similarly, the “M2 money supply,” which includes the M1 money supply plus savings deposits, balances in money market mutual funds, and deposits, has increased 118%. M2 is a better measure of actual money supply. Since the beginning of 2000, M2 money supply has increased more than $5.4 trillion. (Source: Federal Reserve, October 11, 2012.) Again, the printing presses have been in overdrive.

Now think of it this way; as more money is created and more debt is added to the federal government’s balance sheet, U.S. economic viability becomes questionable. What does this mean? The interest rate at which the government is currently able to borrow is being kept artificially low. With the government adding more debt and the inflationary pressure building—something has to be done.

Sam Zell Says Wall Street is Out of Sync with Main Street; He’s Right

By Saturday, October 10, 2015
Wall StreetWall Street is Out of Sync with Main Street, Says Sam Zell Billionaire business magnate Sam Zell says Wall Street is out of sync with Main Street. The $4.8 billion dollar man and chairman of Equity Group Investments really isn’t saying anything the average American reading the news couldn’t have told you. Anyone who visits Profit .

Gold $5,000? Low Interest Rates Could Send Gold Prices Soaring

By Monday, October 5, 2015
Gold Prices SoaringGold Prices Could Soar If Fed Doesn’t Raise Rates Both silver and gold prices rose substantially in Friday trading as news of the U.S. unemployment rate spread, prompting analysts to speculate further commodity rallies. Data show that September saw little more than 142,000 jobs created versus the expected figure of 203,000. (Source:.

Interest Rates: Why the Fed Made the Wrong Move

By Friday, September 18, 2015
Interest-ratesBy deciding on Thursday not to raise interest rates, the Federal Reserve gave the world the wrong message. How I interpreted the Fed’s lack of courage to act yesterday: “After keeping interest rates at zero for seven years, and having printed trillions of dollars in new currency out of thin air, the U.S. economy is still so weak, we .

Economic Collapse: Marc Faber Says This Should Terrify Investors Everywhere

By Friday, September 18, 2015
Economic collapseThe Federal Reserve’s reckless monetary policies have created a colossal asset bubble, which could trigger a stock market crash and global economic collapse in 2016. At least, that’s the opinion of famed market commentator Marc Faber. In an interview with CNBC on Wednesday, the editor and publisher at The Gloom, Boom & Doom.

Interest Rate Forecast for 2016: Rates Going Up Sooner Rather than Later

By Wednesday, September 16, 2015
Interest Rate ForecastLong-term interest rates are going up, leaving those with too much debt struggling to catch up. Everyone will be watching the U.S. Federal Reserve over the next few months to see whether or not the cost of borrowing money will increase. Even if Federal Reserve Chair Janet Yellen decides not to postpone an interest rate hike, long-term .

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