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Small Pullback in Money Printing = Big Spike in Interest Rates?

Interest-Rates / US Interest Rates Dec 23, 2013 - 12:11 PM GMT

By: Profit_Confidential

Interest-Rates

Michael Lombardi writes: Quietly, without much fanfare or news, the bellwether 10-year U.S. Treasury hit a yield of 2.9% this past Friday—double what it yielded in June of 2012. (Source: Treasury.gov, last accessed December 20, 2013.)
Yes, the Federal Reserve only slightly pulled back on its money printing program and interest rates are already spiking.


And the standard 30-year mortgage rate hit 4.52% last week, up from 3.35% in November of 2012. Mortgage rates have increased by about a third in one year’s time. (Source: Freddie Mac web site, last accessed December 18, 2013.)

In the statement issued by the Federal Reserve last week, it said, “Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.” (Source: Press Release, Federal Reserve, December 18, 2013.)

In other words, the Federal Reserve will continue to print $75.0 billion a month in new paper money as opposed to the $85.0 billion a month it used to print. If the Federal Reserve continues to print $75.0 billion a month through the year 2014, its balance sheet will grow by another $900 billion. Yes, by the end of 2014, we will be looking at a Federal Reserve balance sheet that shows close to $5.0 trillion in newly created money on it.

I’d like to end this year’s last editorial issue of Profit Confidential by making my most important message of the year.

All this printing of new money (out of thin air) that the Federal Reserve has undertaken since the credit crisis of 2008 hit will come back to haunt us in the form of higher interest rates and inflation. The higher interest rates, as I have outlined above, have already started. While the “official” government figures don’t show it, inflation is a problem too.

As interest rates and inflation rise, the economy will soften. But isn’t the economy soft already, you ask?

Wal-Mart Stores, Inc. (NYSE/WMT) opened two new locations in Washington D.C. The two stores ended up getting 23,000 job applications for the 600 job openings they had. (Source: CNN Money, December 9, 2013.)

I understand these two stores aren’t representative of the entire U.S. jobs market, but we must acknowledge that after $4.0 trillion in newly printed money from the Federal Reserve, which was supposed to jumpstart the economy, we still have an underemployment rate of 13%…and now interest rates and inflation are going to rise?

Further damage to an already soft economy is coming in 2014.

This article Small Pullback in Money Printing = Big Spike in Interest Rates? is originally published at Profitconfidential

We publish Profit Confidential daily for our Lombardi Financial customers because we believe many of those reporting today’s financial news simply don’t know what they are telling you! Reporters are trained to tell you the news—not what it can mean for you! What you read in the popular news services, be it the daily newspapers, on the internet or TV, is the news from a “reporter’s opinion.” And there’s the big difference.

With Profit Confidential you are receiving the news with the opinions, commentaries and interpretations of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate and other investments so we can tell you what we believe today’s financial news will mean for you tomorrow!

© 2013 Copyright Profit Confidential - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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