Interest Rates: Expect Higher for Longer. How to Thrive in an Higher Interest Rate Environment.

Nov 28, 2023

The US Government cannot just print money endlessly. The Federal Reserve is required to hold assets equal to every dollar in circulation. 

The majority of those assets are treasury bonds. Bonds are a debt instrument. When the government sells a bond, it promises to pay a fixed interested rate for a certain period of time. This is similar to a CD.

 

The government does not pay down the debt. When a bond matures, the government issues a new bond at the current interest rate. The total national debt is over $33 trillion. The government issues several trillion dollars in bonds annually. The fiscal 2022 federal deficit was $1.7 trillion. This means the government sold $1.7 trillion of bonds in addition to the bonds sold to maintain the existing debt.

 

The Federal Reserve and the Bank of China were the two largest buyers of treasury bonds over the past decade. Both central banks are now selling bonds, not buying them. The government is having to offer higher interest rates to entice buyers.

 

As the federal government continues excess spending, they will have to sell more and more bonds with fewer buyers. They will have to offer higher interest rates to sell the treasury bonds. If the government is offering higher interest rates, it forces most other interest rates higher. 

 

When you want to finance a purchase you are competing with the US Government to borrow money.

 

Interest rate sensitive assets will thrive while asset values on most stocks and real estate will suffer. 

 

Your Personal Bank dividends are interest rate sensitive and will thrive in a higher interest rate environment. Dividends are likely to increase for the next several years due to higher interest rates. 

 

Your Personal Bank funds grow income tax-free and you can access tax-free. This shields you from likely higher future tax rates. You can grow your money safely, with guarantees, tax-free, and highly liquid.