Wednesday, June 10, 2009

The Economy: A Picture Tells a Thousand Words

The following chart portrays the yield on 10-year treasury notes during the last 6 months. Notice that the rate has gone up from about 2% to 4%. And, it keeps rising.

Why is this important? Because it is the rate the Treasury has to offer to folks from China, Saudi Princes, and a few good Americans to lend to our government in order to fund the massive increase in spending that Obama has proposed since January. This rate is related to other interest rates in the economy including mortgages, business loans, credit cards, and most other loans that charge an interest rate. For example, in the last month 30-year mortgage interest rates, which Americans who want to buy homes have to pay, have also gone up. Not good for an economy that needs to see a fix in its housing mess in order to recover. It's also not good for business investors who want to take a loan to start a business, hire new employees, or buy new equipment. The irony is that the proposals intended for "recovery" are likely to start hindering a real recovery as borrowing costs increase.

A picture is just a picture. But this demonstrates that no country can borrow and spend indefinitely, even the great United States. The bill for these policies is coming due.

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