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Something is different this time. Interest rates have never been lower, but that’s beginning to change and it’s causing a fuss, as explained in this recent Lance Roberts article. So what’s the fuss? You’d think investors would be relieved by a return to a more normal situation. But be careful.

The costs of rising interest rates
A low interest rate is one of my 15 explanations for the inflating of our stock market bubble because investment analysts discount future earnings at a low rate. Consequently, an increase in interest rates reduces the present value of future earnings, so stocks are worthless.
The second cost of rising interest rates is the increased cost of servicing our country’s $23 trillion debt. We can barely afford to service the debt under zero interest rate policy (ZIRP). Consequently, the government will need to take money from other programs like Social Security and Medicare, and it will likely print more money.
The problem with printing more money is that we’ve authorized $5.2 trillion in COVID relief (including the just-signed $1.9 trillion stimulus) in addition to the $4 trillion in quantitative easing (QE); that is “new money.” President Biden supports another $2 trillion in infrastructure spending. Our GDP is $21 trillion, so that expansion will cause inflation, the third cost of rising interest rates.
The benefits of rising interest rates
I can think of two benefits to rising interest rates: market manipulation is rarely good, and investors who would like to invest safely can get paid something for their money.
The U.S. bond market has been manipulated now for a decade, especially the short maturity end of the yield curve. Markets work best when investors determine fair prices. In other words, our bond market has not been working at its best for some time. A return to normalcy should be good even though there will be costs to pay.
The past decade has been a terrible time for retirees, who cannot earn a fair return on safe, short-maturity bonds. They’ve been driven to risky assets that expose them to what is called sequence of return risk. Losses at this stage in retiree lives can irreparably harm lifestyles and reduce the length of time that savings will last. I started the Baby Boomer Investing Show to warn retirees and help them protect their savings. Unfortunately, a return to normalcy could come too late for most of our 78 million baby boomers.
Conclusion
The fuss over rising interest rates is justified. The world has been running a money-printing experiment that has led to a debt crisis where per capita global debt exceeds $200,000. World central banks can just barely pay the interest on this debt, which means they won’t be able to pay when interest rates increase. This experiment will end badly.
Please see How to Minimize the Impact of Inflation, Recessions, and Stock Market Crashes for some thoughts on protecting yourself. Also, Peak Prosperity is a good source of economic analysis that says it like it is.
Ron Surz is CEO of Target Date Solutions, Age Sage, GlidePath Wealth Management, and co-host of the Baby Boomer Investing Show that you can binge watch on Patreon.
Please watch and support our Baby Boomer Investing Show on Patreon and visit our Baby Boomer Libraries, our Target Date Fund blog, and our
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