SAN DIEGO, California – Consumers vote with their wallets and so do the markets. It’s pretty amazing to look at the bond market and interest rates today. In less than two months, from the beginning of January to the end of February, the yield on the 10-year Treasury had risen an impressive 54.9%, from 0.91% to 1.41%, after briefly reaching the 1.52% on February 28. Meanwhile, Treasury yields in other industrialized countries are much lower, including Germany, which has a -0.25% negative yield on its 10-year Treasury note.

While some economists argue that this seismic rise in US Treasury yields is due to the improving economy, the strongest underlying factor appears to be fears of upcoming US inflation attributed to appetite. from the current administration for printing (borrowing) and spending money. , including the additional $2 trillion in the new economic stimulus package. This is on top of the money, which the previous administration borrowed and injected into the economy in 2020, including $1 trillion, which has yet to be spent.

As the late Senator Everett M. Dirksen used to say, “A billion here, a billion there, and pretty soon you’re talking real money.” Except we’re talking about billions here. How much money is a trillion dollars? In summary it is: $1,000,000,000,000 or one thousand trillion. Our entire national debt in the year 2000 was around $6 trillion, now it is over $27 trillion and growing rapidly. Of course, higher interest rates also mean a higher cost of servicing our national debt.

Just to put things in perspective, our US Gross Domestic Product (GDP), which is defined as the total market or monetary value of all finished goods and services produced within our borders, was approximately $20.9 trillion. in 2020. Our total annual federal income tax revenue is about $3.5 trillion or about 16% of our GDP. So our national debt far exceeds our national income. Do we see a problem here?

Printing lots of fiat money as a long-term economic “fix” never brings lasting good results. When in doubt, look at Venezuela. Once the richest country in Latin America, Venezuela is now one of the poorest, with inflation so high your money isn’t worth the paper it’s printed on. How bad is inflation there? At 2.685% in 2020.

To the average person, these kinds of numbers are so astronomical that they make little sense. But what does rising interest rates mean for us regular folks? Certainly a higher cost of living, including higher mortgage rates (home loans, home equity lines of credit), which affect housing expenses, a higher cost of consumer credit (credit cards, loans for autos), a higher cost of student loans, and the list goes on. . It will also cause higher prices on everyday goods and services. Have you seen gasoline prices lately?

The rising cost of credit will surely hit the housing market, putting downward pressure on housing prices and affordability. The housing market is critical to the overall health of the economy, affecting many jobs, consumer spending, and the overall wealth of our nation.

It is safe to say that the housing market needs to be corrected anyway, since the price increases during the pandemic were pronounced and unsustainable. That could be true, however higher interest rates will make this correction much more severe and long lasting.

So, just as we are beginning to see some signs of a nascent economic recovery, another presumably well-intentioned stimulus, or at least its sheer size and timing, may backfire and damage. The focus must be on using unspent “old” stimulus money wisely, which Congress had already passed last year, keeping interest rates low and reopening the economy as vaccination efforts gain momentum and infections and deaths from covid decrease.