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Will Inflation Keep Bubbling?

The period from 1980 to 2002 was one in which USA dollar interest rates fell. Foreign investors bought USA dollars, stocks, bonds, and real estate because they were rising in value due to the decline in USA interest rates. By 2002, USA interest rates were so close to zero that they could not fall further. Foreigners sold us the goods to get US dollars to invest in US assets.

Now the game is played backwards. USA interest rates started to rise in 2003 and they are still rising at the long end of the interest rate curve. The Fed has tried to stop the USA interest rate rise but has failed. Except for short loans, interest rates are still going up. Mortgages, which borrowers can no longer qualify for, are at 7%. 2 year and 5 year interest rates are moving up even as the Fed cuts short rates. Bond prices are falling as are stock prices which means interest rates on them are going up. Stock price to earnings ratios are falling and real estate prices are falling. These are indications that interest rates on long contracts are going up.

Foreigners are jumping out of USA assets and selling USA dollars for other currencies where investment asset values expressed in US dollars are not falling as fast as they are in the USA.