Record Low Interest Rates – Lowest Since 3000 BC?

Are you invested the right wayRecord Low Interest Rates – Lowest Since 3000 BC?

Interest rates set a record low back in 2012.  Since then they have been up and down.  Here is what the chart looks like:

070616-1

This is a chart that tracks the interest rate for the 10-year treasury bond. Since November 2015, interest rates have been almost crashing. They drop from 2.37% to a record low 1.33% this week. The decline as of late has been dramatic. Of course, Great Britain leaving the EU had something to do with it.

Typically, you don’t see these types of declines unless there is a crisis emerging. Today, there is not a crisis that we know of. Does the bond and interest rate markets know something that we don’t know?

People buy treasury bonds as a safety net in times of crisis. When bond prices go up interest rates go down. There just might be something boiling under the surface.

Now take a look at this chart:

070616-2

Today’s interest rates are the lowest dating back to 3000 Before Christ.  Incidentally, you can go to this article to see how they came up with these numbers.

What are the conclusions?

1)      We are incredibly out of balance.  Having interest rates at historical record lows is not healthy nor is it natural.

2)     We can’t afford for interest rates to start rising.  Remember we have almost record credit card at almost a trillion dollars, record student loan debt that is over 1.3 trillion dollars, and record automobile debt that has exceeded 1 trillion dollars.  Oh and I almost forgot….19 trillion plus dollars of US debt.  Rising interest rates increase the cost of debt for everyone.  Plus I doubt our economy is strong enough to handle a rise in interest rates.

3)     We are getting closer and closer to NEGATIVE interest rates.  I can’t even get my arms wrapped around that one.  That is truly unprecedented.

One thing we can probably assign a low probability to is interest rates just staying put.  If they go up dramatically, we are in a bad position.  If they go negative, we are in a bad position.

I have said for a long time to watch interest rates.  They are the signal of things to come.  Could they be signaling the next crisis?

Bob Brooks is the host of the Prudent Money Radio Show and the president of Prudent Money Financial Services. Through his firm, he invests and manages investments for his clientele. To contact Bob, you can email Judy at Judy@prudentmoney.com to set a time.

 

  • Brad Hise

    On the subject of potential crises I am watching how “Brexit” plays out. Sovereignty generally isn’t won without a bloody war. The potential is there for a multinational conflict.

    • Bob Brooks

      Brad- that is a good point. I haven’t considered it from that angle. We are truly living in interesting times.

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