Interest Rates and the National Debt

Where are interest rates headed?  Interest rates are one the most influential factors in American economic activity.  In fact, the only thing that affects the economy more than interest rates would be the unemployment rate.  Since this blog explores the consequences of America’s runaway National Debt, we thought it would be appropriate to explore the relationship between interest rates and the national debt.

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.

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.

A few years down the road, we are likely to see substantially higher interest rates.  So borrowers should take advantage of today’s low rates, while savers should avoid locking in to today’s low rates.

Thank you for visiting this site and reading this article on interest rates and the national debt.   Your interest in the national debt and related topics is very much appreciated, and you are invited to read additional articles on this site.