[Ghost of SVR4]

Toss me a clue? Why is 4% bad? What are the ramifications?

Thanks

[Mr. K]

we borrow so much on a daily basis that an increase of just a percentage point would make the INTERESTE ALONE on the national debt greater than we can pay

[HonorInPa]

That will cause mortgage rates to dramatically increase, thus slamming the brakes on a modest housing recovery. It reduces the number of people who can qualify and also reduces the amount of house you get for the same payment dollar. Also, other debt instruments - credit cards, car load, student loans, etc. are based on the T-note rate. The rippling effect of the increase - particularly so much too fast will kill the recovery.

[Bloody Sam Roberts]

At 3% a lot of market type folks will panic. As stated it is a psychological barrier. It indicates that not as many people are buying T bills. When sales of US backed bonds fall off it is bad. Think of what gets financed by the sale of those bonds. Think of the ramifications. QE4. QE5....which triggers rampant inflation. And unfortunately...probably without any kind of deflationary cycle to precede it. I’ve been kind of counting on that before the dollar goes into the crapper.

[Attention Surplus Disorder]

Bond rates are not that easy to understand. Without trying to explain the full panoply of implications, when rates recently moved from (picking an arbitrary point) 2% to (now) 2.9%, money became about 45% more expensive. Where (among other places) this has profound implications is in the area of leverage. The question one has to ask is, for most of "our" lives, we have seen rates fall...from the double digit rates of the late 70's and 80's...to the unbelievably low levels produced by QE and the other central bank reactions to the financial crisis of 2008. Those rates falling has INCREASED leverage throughout the system...from real estate, to financial assets, to the cost of college education. FOR THIRTY YEARS. And so, one must ask, are we "done" with the financial crisis and entering a secular period in which rates will rise to their nominal, normal levels? Which are probably in the area of 5-7%. This is the question of the age. What happens if money gets 200 or 300% more expensive? Certainly, there will be a heck of a lot less of it sloshing around the system, making hinky real estate deals infeasible, making stocks less attractive...and making gold/silver (of which I own plenty) far less valuable. And there will probably be less economic activity, because fewer economic activities will generate sufficient profits so fewer people will want to invest in them. This is DEflation. It's hard to predict what will happen; so few can do it and I include myself. I can tell you that rising rates would make the US debt unsustainable all that much faster.