Our Nation: So where do we go from here? Part 2
U.S. Interest rates Over the next two years, rates will be low by historical standards. This will be bad news for fixed income investors, and good news for borrowing costs. In the 5-10 year time frame, there will be pressure for U.S. interest rates to rise due to the size of the U.S. government budget deficit. In addition, as the economy rebounds (and trust me, it will rebound), then the Federal Reserve will raise interest rates to hold inflation in check. So when the government spends more than it collects in taxes, who pays the difference? Today, the shortfall caused by taxes collected being less than government expenditures, has been funded by foreign government purchase of Treasury bonds of various durations. Indeed, of all of the "savings" in the world, the U.S. consumes 85% of it to finance its borrowing. Mind you, the shortfall could be funded by US citizens buying government bonds, and if investors become more risk averse over the next two decades, this may occur. B
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