Saturday, June 8, 2013

Interest Rates - Should We Panic?

There are some voices of concern in the market that interest rates are rising as demonstrated by the graph below of the yield on the 10 year Treasury security.

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Over the last month or so this rate has risen from about 1.75% to 2.125%. This is a significant jump in 30 days. Mortgage interest rates typically follow in tandem with the yield on the 10-year treasury security.

Putting the present interest rate in context, in 2008 the yield on the 10-year Treasury was 4.125%. In a longer term perspective, the rate 5 years ago was very attractive.

This recent rise in interest rates means that the total economy is improving, unemployment rates are falling and the middle class is feeling better about their balance sheet as the equity in their homes are rising. What is now occurring is what was predicted by Free Our Free Markets in November 2008.

There are still problems in the economy including; a general perception that our government does not work, interest rates will start going through the roof because of quantitative easing, an unhealthy concentration of wealth in the country, China and others are catching up to us, the nation still has a long term debt problem and the war on terror is continuing. Nonetheless, we feel good because progress is being made.

In the end, interest rates are rising as a natural result of an economy that is improving. There is nothing in site indicating these rates will skyrocket.

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