The Skinny on our Anorexic Interest Rates

I'm sure everyone at some point in the past six months has read an article discussing how interest rates are at record lows. What does this mean? Basically that the Fed is keeping rates low to encourage us to spend more. Think about it if it were a credit card, the lower your rate, the more likely your are to to splurge on those shoes on that card as opposed to another card with a higher rate essentially making your shoes more expensive.

A year ago when this entire economic catastrophe hit, people were scared of everything from the very riskiest of stocks to the very safest of bonds. Now that things have settled down, everyone's new fear is inflation and interest rates sky rocketing. I don't believe that's going to happen and here's why. While our government is printing and spending money like a bunch of drunken sailors, you and I aren't seeing any of it. This money is going to all of the large institutions that put us in this mess to not create any more turmoil than they already have. We're all aware that we're not seeing any extra money and the money that those of us who still have jobs make, we're tucking away to pay off our credit card bills from last year's shoes. Basically, the American consumer is not ready to pull us out of this mess like the Fed is hoping. Since we're not ready to spend our hard earned cash, and it will probably take most people at least 3 more like 5 years to pay off their debt, interest rates will most likely not turn around for at least another 5 years. Also, when they do, our economy will not shoot up in a straight line, it's going to be an uphill climb and not like a steep black diamond, think bunny slope.

So basically if you're going to invest in a bond and you like to look short term, look at least 5 years out because if you buy something just 3 years out, your bond is going to mature, rates will still be low, possibly lower and you will have to reinvest at a low or even lower rate. Moral of the story is lock in a bond yield to weather out this storm because right now interest rates seem to be stuck on a prepetual cleansing diet.