SAN DIEGO, California – Consumers vote with their wallets and so do markets. It is quite 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 10-year Treasury yield had risen an impressive 54.9%, from 0.91% to 1.41%, after briefly hitting the 1.52% on February 28. Meanwhile, Treasury yields in other industrialized countries are much lower, including Germany, which has a negative -0.25% yield on its 10-year Treasury bond.

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 of the current administration for printing (borrowing) and spending money. , including the additional $2 trillion in the new economic stimulus package. This is in addition to money, which the previous administration borrowed and pumped 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 trillion here, a trillion there, and pretty soon you’re talking real money.” Except here we’re talking billions. How much money is a trillion dollars? In short it is: $1,000,000,000,000 or a billion. Our entire national debt in 2000 was around $6 trillion, now it’s over $27 trillion and growing fast. 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 monetary or market value of all finished goods and services produced within our borders, was approximately $20.9 trillion in 2020. Our total annual federal income tax receipts are 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 “solution” never brings lasting good results. When in doubt, look to Venezuela. Once the richest country in Latin America, Venezuela is now one of the poorest, with inflation so high that 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 ordinary people? 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 cars), a higher cost of student loans, and the list goes on. . It will also cause higher prices for everyday goods and services. Have you seen the gas prices lately?

Rising cost of credit will certainly affect the housing market, putting downward pressure on prices and affordability. The housing market is critical to the overall health of the economy as it affects many jobs, consumer spending, and the overall wealth of our nation.

Arguably, the housing market needs to correct itself anyway, as the price increases during the pandemic were steep and unsustainable. That could be true, however higher interest rates will make this correction much more severe and long lasting.

So, just as we begin 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 hurt. The focus should 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.