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Double Digit Interest Rates in the Next 2 Years?

February 16th, 2009 · No Comments

I spent the past week in a real estate investing class in order to fulfill my post licensing education requirement for my broker’s license and learned quite a bit. There were real estate professionals specializing in numerous different fields and we all had one thing common, our business is way down.

The stuff in the textbook was boring and redundant as hell, but we all shared our thoughts on the market with each other which was far more useful and educational. Basically, I got a pretty clear picture of the entire market and some ideas on where we’re headed.

Probably the most shocking revelation was a widespread belief that interest rates will surpass double digits in the next 2 years. I think the number being tossed around was 12%. I know… shocking. It was brought up by a lender that I’ve known for a long time named Michelle. She cites the excessive printing of money as the cause of such high rates in the near future.

The Fed actually began printing more money in the second half of 2008 as traditional tools like reducing rates and reserve requirements for banks stopped working. If the Fed did not print money and injected it into companies like Citibank and AIG, the stock market would have seen a much more precipitous fall.

The only problem with printing money is that it causes inflation which has a crippling effect on any economy. Basically, it’s a short term fix which will have long term repercussions in the form of inflation.

Don’t forget that our country is gonna start beginning to lose a huge percentage of the labor force in the next two years as the baby boomers start reaching retirement age which will present another set of problems altogether.

That brings up the social security problem which everyone seems to have forgotten about. The way the system is set up right now, the people that are currently working fund payments to the people that are retired. Simply put, that won’t be possible because of the sheer size of the baby boomer age group. An economy in recession with double digit interest rates won’t help either.

I remember reading Rich Dad Poor Dad author Robert Kiyosaki’s book, Rich Dad’s Prophecy which goes into the subject in more detail.

This post is starting to sound like a doomsday prediction, but I’m just going off what the lender in my class pointed out and many of my classmates which included a medical building developer and a business broker agreed with her.

I sure hope they’re wrong, but I think they have some valid points. I’m sure gonna pay close attention to changes in our nation’s financial policies from here on out.

There will be some more posts this week on the interesting topics that came up in our discussion in class so stay tuned.

related links: Keynes’ Prophetic Words, Why Printing Money Causes Inflation

Tags: Market Forecast · Mortgages