Still on This Topic

I’m sorry if I’m beating this poor horse to death, but I feel compelled to get it down in bits and bytes, if for nothing else than posterity. It’s the Economy Stupid, the smartest thing ever said by a redneck named James Carville way back in the Clinton Era. It’s always about the economy, forever and ever, world without end, Aaahhhmmen.

James Carville – I wonder if he realized how smart he really was when he said this?

Right now I’m sort of noodling, as the future in the next three-four months will be opaque, but of the utmost importance. So indulge me a bit as I try to parse through this thing.

Here we go. Money right now is flowing to safety and to higher interest. Per Axios today, half a trillion (yes, Virginia, I said trillion) dollars has flowed out of banks and into treasuries and money market funds since last April. Why is that time frame and the receiving institutions significant? It’s when the Fed started raising interest rates. After twenty some odd years of low rates, now we’re in the stratosphere, relatively speaking. Another quarter point increase from the Fed this past week. Three bank failures in the past three weeks. Result? Treasury prices are up, which means interest rates are down. Is this a good thing or a bad thing? It depends.

The Infamous Debt Ceiling

Interest rate hikes make borrowing more expensive for everyone, including the federal government. That adds to the deficit. Treasuries, or T-bills as they are called, are used by the federal government as a means to borrow money. If the interest rates are going down, that’s good for keeping the deficit numbers in check. Does any of that matter? We shall see this summer when the Republican-led Congress has to vote on increasing the debt ceiling. Let’s talk about that a bit.

The chair of the House Budget Committee is a Republican named Jodey Arrington, a man who thinks it’s a good time to default on the debt by not raising the debt ceiling. This is to pressure President Biden to cut spending on social programs. But not raising the debt ceiling means Social Security checks would not go out. That’s 44% of our monthly income. Ouch. I’ve already alerted Emily that she needs to be hoarding her paychecks for the next three months, just in case. There’s another issue for us. Our variable rate house mortgage with Wells Fargo will reset to a 15 year fixed rate mortgage in September. This will triple our mortgage payment. If we cannot refinance with them or another bank, the impact to our budget will be significant. So all this noise regarding the financial system, Congress and banks really hits home with our personal budget. Right now, the odds of the government defaulting on its debt are around 11%. Each month that goes by without an agreement increases those odds and lends more instability to the system. So with money flowing out of the banks within this unstable financial system, the logical next step is for financial institutions to cut back on lending.

The Trillion Dollar Question

So the big question for us, is: what will interest rates be on mortgages come September? It’s anyone’s guess at this point. But I’ll be watching closely. I’d advise you to do the same.

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