Interest Rates Will Rise In 2010

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Next year may lead to an even worse financial disaster.  The band-aids that have been applied cannot hold much longer and it will hurt when they are removed.  With the massive spending by the US government to payoff large corporations, it is only a matter of time before the world no longer will be able or willing to bail out the US.

If the government was a business there would not be an entity anywhere that would be willing to loan them money. The new idea the politicians have to fix any problem is to spend.  For some reason they believe that if you throw enough money at a problem it will go away.  It works for people so why not economics.

Why Interest Rates Will Rise In 2010

Interest rates, artifically suppressed by the Federal Reserve and China, are about to start rising, and will continue rising for a generation.

On Christmas Eve 2009, I wish I could parrot the “happy-happy” Party Line that interest rates and mortgage rates will stay low for essentially ever, but that would require lying. The truth is the drivers of super-low interest rates are diminishing, and the forces of higher rates can no longer be restrained.

There have two primary drivers of super-low interest rates: The Federal Reserve and the Chinese buying Treasury bonds.

The Fed has created massive artificial demand for more U.S. debt in two ways; by direct purchase of bonds being auctioned (During the first 2 months of the new fiscal year, the Federal Reserve grew its balance sheet by about $65 billion, in effect purchasing about 22% of the federal government’s new debt) and by secretly buying Treasury bonds from “primary dealers” (banks) a few days after the auction.

This way, it appears for propaganda purposes that some private parties are actually buying T-bills to hold, when in fact they are only temporary proxies for cloaked Fed purchases.    –more