Turn Out The Lights, The Partys Over?
Happy Holidays to everyone! If you’re like me, you may have enjoyed a few holiday parties this season. My wife and I went to three of them in the two weeks. The first one was a doozy! Everyone partied hard and had a great time. I saw some of the same friends again at the later parties. Needless to say, we were all slightly more subdued the second and third times around.
The first party was great but the second two were more realistic. At 40+ years old, we can’t expect to party like college kids every weekend and still have the energy and focus to run our businesses and raise our families and handle all the other professional and grown up things in our lives.
Likewise, with the short-term prime interest rate going from 4 percent to 7.25 percent over the past 1.5 years, many would say that the party is over. Perhaps that is true, but I don’t feel like it is time to turn out the lights just yet. Similar to a bunch of 40 somethings partying really hard at the first holiday party, having short and long term rates at 4 percent to 5 percent was just not realistic or sustainable.
Don’t get me wrong; it was fun while it lasted and we all had a great time. But it certainly doesn’t mean that what we have now isn’t good, too. Thirty year rates are still in the low 6 percent range and even with short-term rates at +/- 7.25 percent, it’s still a pretty good party. Rates are not so high that they are stifling the economy or forcing people into bankruptcies and foreclosures.
I think the rates we have now are more realistic and sustainable. But they are also high enough that they may curb some of the more “dangerous” spending habits that many people had when money was too cheap. And that could have the affect of encouraging people to save more money. Americans as a group save way too little money. Saving is good for the health and progress of any nation so this could actually have some positive big picture consequences.
Right now the interest rate party has definitely mellowed, but I would not say it is over. If long-term rates go above 7 percent and stay there for a while, then we can officially declare that the party is over.
Until then, keep enjoying the champagne.