Deficits and debt mean higher interest rates
Why are deficits and debt bad for the economy?:
In a nutshell, interest rates are significantly influenced by the national debt. That’s because when the government is borrowing lots of money, it puts upward pressure on all interest rates. This includes mortgage rates, refinance rates, credit card rates, auto loan rates, savings rates, money market rates, and certificate of deposit rates.All this debt we are accumulating now is going be a big problem later on, which is a point I made often during the last year of George W. Bush's presidency. It's a point the CBO raised when the stimulus bill was pushed, and eventually passed, early last year in the first month of Barack Obama's administration. What the end result? Many of the same problems we're having now.So if interest rates are affected by the national debt, why are interest rates so low when the national debt is at a record level? It’s a good question. The answer lies in the fact that the Fed is keeping interest rates artificially low right now in order to stimulate the economy. Once the economy recovers, however, the Fed will have no choice but to raise interest rates.
So how does that affect you? It depends on whether you are borrowing money or investing money. If you are borrowing money, now is the time to lock in to a low mortgage rate or auto loan rate. On the other hand, if you are investing money, be careful about locking into a long term investment such as a certificate of deposit at today’s low rates.
