Hello Inflation, how are you?

So, I'm going to blog a bit on the economy, because I feel like I should be sharing some of my insights on what's going on, and I've had more than a couple friends who have asked me what it all means.

The latest news is the raise (again) of 30-fixed mortgage rates (currently 6.48%) AND the bond yield (interest) on Treasury notes(currently approx. 4%, up from 3.7%). Why do I bring up both? Because the are intrinsically related. Basically, when the yield on Treasury bonds or notes go up, so does the interest on your consumer loans (car, mortgage, etc).

"But wait!" you might say. "I thought the government was fixing the credit crunch, giving money to the banks. How can the credit crunch be fixed if credit costs more? I need things to cost LESS not MORE!" I hear you. The missing piece of this puzzle is the federal debt. Where did the money come from for these bailouts? Debt. Where does a lot of our government's money come from? Debt. And who lends the debt? Investors. Specifically investors buying treasury notes and bonds.

To attract more investors, the US has to raise interest (yields) on the loans they take out (Treasury notes and bonds.) What makes things worse is that many investors are selling their Treasury notes, or not buying new ones. Cause no one wants to invest in a country that's struggling until they are sure that country will come out on top.

So, the US Treasury raises yields, to attract money to fund the bailout, and those raised yields raise interest rates that you pay for your mortgage. Worse, high yields typically result in a lower dollar value and inflation, though it may take a few months before we see it. You see, the dollar's value is also tied into the yields on these notes.

On a more common level, the buying power of your dollar is tied to how much you can buy with it, and as living costs raise (by people paying more for cars, mortgages, store front leases, etc), the cost of everything else raises too. So your dollar buys less.


So, for those who are still with me, the point is there is no free lunch. Our government would like you to think that they can create money out of nowhere, or that they have gobs of it to pull out in an emergency. The truth is they don't, and we will be the ones who pay with inflation and further economic recession.

PS. I now return you to my regularly scheduled blogging