Rates Are Going Up! How Much?

Today’s blog is about interest rates.

My best guess

I’m going to go ahead and go on record and say that interest rates are going up in the next two to four weeks. I estimate they’ll go up by about one half of one percent. This is due to the federal government’s inability to contain spending, and to pass a reasonable debt ceiling tied to some sort of spending constraints.

We’re also possibly going to get a debt downgrade even if they come through with a debt ceiling bill that passes and we extend the government’s credit card. The rating agencies know the cat’s out of the bag. It’s too late. They know that we can’t contain spending. They know that whatever we’re going to suggest we cut out of the budget is going to be backloaded in later years and it’s just a drop in the bucket. If the federal government can’t get our spending under control, the markets are going to do it for us through lack of trust in our debt issue and higher interest rates. I don’t think rates will explode, however.

Japan is a good analogy

If you look at Japan several decades ago they imploded and there was faith lost in their debt markets. They had a bloated deficit and everybody thought that their interest rates would skyrocket and people would stop lending to them. But Japan is not Greece. The United States is not Greece. We have a better ability to earn and grow our way out of this. I don’t know that we’re going to. We just have a better ability to. People have more faith in the United States. People had more faith in Japan. Their interest rates rose when their economy tanked and of course their economy has stayed in the tank for almost two decades. But their interest rates didn’t skyrocket.

Specific numbers

So there are some alarmists who think that interest rates are going to spike and really skyrocket, not unlike Greece. I don’t think that’s going to happen. Right now you can get a 30-year fixed interest rate that two weeks ago was 4.375% if you were borrowing up to $417,000. Today it is 4.625%. I believe at the end of August it’s going to be 5.125% or 5.25%.

There it is. I’m on record. Feel free to play this back many times and let’s see if I’m right and if it comes through.

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