Summary:
Understanding the potential consequences of lower interest rates, such as sparking another refinance frenzy, accelerating inflation, and reducing the dollar's purchasing power, is crucial. This knowledge empowers us to make informed decisions, underscoring the' significance and financial impact of interest rate changes. It allows us to navigate these economic shifts with confidence and preparedness.
While higher interest rates are not expected to cause an economic crash, they could dampen economic growth. This could mean slower business expansion, reduced consumer spending, and decreased job opportunities. This consequence is the opposite of the new administration's mandate to give power back to the people, which aims to stimulate economic growth and job creation.
Although often overlooked, 10-year treasuries are a crucial benchmark for predicting interest rate trends. By understanding and monitoring these treasuries, we can stay engaged and proactive in our financial decisions and gain valuable insights for investors and analysts.
Article:
Monetary and fiscal policy have both positive and negative consequences- unintended consequences, socio-economic subsets and benefits, while others are harmed. With a 2024 deficit of 3.5 trillion dollars, about 7% of GDP, something must change fast.
If interest rates increase, the cost of Federal deficit financing will increase, as will consumer credit costs. The Federal debt burden is already mind-boggling: 36 trillion on the books, 200 trillion off the books, unfunded and underfunded Social Security and Medicare, and a shortfall in all government retirement systems. Since the top 10% of taxpayers pay 75.8% of the taxes, and the top 25% pays 89.2% of the taxes, most of this accrued debt will fall on them.
https://taxfoundation.org/data/all/federal/latest-federal-income-tax-data-2024/
The 5-year U.S. Treasury yield is 4.278%, while the 10-year yield is $4.39%. These yields are essential indicators of the market's expectations for future interest rates. At the same time, the Federal Reserve banking system is effectively insolvent because of its past purchases of U.S. Treasuries at 1% to 2%. If mark-to-market valuations were triggered, then most major banks would collapse. The Feds pivoted and allowed banks to value low-interest-rate treasure as held to maturity, shoving the problem into the back of the file cabinet. This situation underscores the fragility of the current financial system and the potential risks associated with it.
The term exacerbation comes to mind. Miscalculated action will worsen bad decisions, as will government habits in general. Another phrase that defines future choices is between a rock and a hard place, which means choosing between two complex options. This underlines the importance of understanding and being cautious about the potential risks of government actions, ensuring we are fully aware of the possible consequences and remain vigilant in our decision-making.
U.S. Treasuries could surpass 5% to 6% in 2025 if deficit spending continues at the current rate. The potential economic implications of this scenario, including the impact on current economic conditions and the deficit trajectory, should be a cause for concern. We must be attentive and prepared for the possible financial implications of such a scenario, staying alert and ready to respond.
Observe. Although Donald Trump and his worthy administration are full of private enterprise-proven warriors, the first order after the inauguration will be to trim the fat from the government by eliminating useless pet programs, misguided allocations, and parasitic systems. If the Department of Government Efficiency (DOGE) were to trim 2.5 trillion off the bloated budget, it could stabilize the economy by reducing the deficit and potentially freeing up funds for more productive uses. The additional 1 trillion of deficit spending would be made up to accelerate the economic engine, thereby receiving additional tax dollars. This could lead to a balanced budget and a more efficient government. Can you imagine how society would change with a balanced budget?
We will see if the mandates can be carried out, but there will be pushback from the Government Apparatus, which operates off the backs of the taxpayers. This pushback could come in the form of resistance to budget cuts or changes in government programs. The first 100 days of the new administration will dictate our future, and how these potential challenges are navigated will be crucial.