Bond Rates, Inflation Lies, and What the Government Is Not Telling You
The Ball Was Always Going to Come Back Up
I have been making this case since the turn of the century. Interest rates in the United States were never at natural levels. They were artificially suppressed by the Federal Reserve, by policy, by political will. And I used to describe it to my audience with an analogy from my childhood. My brothers and I would take a soccer ball or a basketball into the deep end of the pool and try to swim it all the way to the bottom. We never could. And eventually the ball would slip out of our hands and rocket straight back up to the surface. That was never a matter of if. It was only ever a matter of when.
That is exactly what is happening with bond rates right now.
The 10-year Treasury breaking above 5% and the 30-year going parabolic is not a surprise to me. I have been shrugging my shoulders at the questions coming my way because people are acting like this is some kind of shock. It is not. The shock would have been if rates stayed artificially low forever. Nothing about that was sustainable.
The Debt Problem Nobody Wants to Solve
Here is the reality that nobody in Washington or on Wall Street wants to say out loud. We are sitting on roughly $40 trillion in national debt. We are running $2 trillion annual deficits. And not a single person in a position of power is doing anything meaningful to address it.
Now layer on top of that the fact that global buyers are walking away from U.S. Treasuries. The appetite simply is not there anymore. Saudi Arabia, one of our largest historical buyers of U.S. debt, cannot buy what they cannot afford to buy. When oil revenue dries up, their purchasing power for our bonds dries up with it. These are not complicated dots to connect.
So when people in the administration ask how we are supposed to afford higher rates compared to other countries, I understand the frustration. But you do not get to ignore the laws of financial gravity indefinitely. At some point, the bill comes due.
Why I Ignore the Fed Noise
People love to say, do not fight the Fed. I have heard it a thousand times. My response is simple. I do not spend a lot of time worrying about what the Federal Reserve is going to do at the next meeting. I look at the economy. I look at corporate earnings, which have actually been strong for many companies. I look at the real, ground-level data.
Here is what rising bond rates actually mean for everyday investors:
- Capital flows shift toward fixed income as yields become more attractive, which can suppress stock market performance in the short term.
- Borrowing costs rise across the board, affecting everything from mortgages to corporate debt to government interest payments.
- Pressure mounts on the budget as the government must service its debt at higher rates, making the deficit problem even worse.
- Inflation does not go away quietly just because the Fed wants it to.
The Inflation Numbers Are Not Real
This brings me to a point I have been hammering for 26 years. The government inflation numbers are a fugazi. They are not real. The methodology has been manipulated, adjusted, and massaged to the point where the official figures bear almost no resemblance to what actual Americans experience at the grocery store, at the gas pump, at the insurance renewal.
I have maintained my own informal inflation indicators over the years, tracking what things actually cost in the real world. And our read has been far more accurate than what the Bureau of Labor Statistics puts out. When I hear commentators and policymakers say inflation is in check, I want to ask them who they are buying groceries for.
The bottom line is this. Rates are not too high. They are returning to where they should have been all along. The artificial suppression created distortions throughout the entire economy, and we are now living through the correction. Investors who understand this will be positioned to navigate it. Those who are still waiting for rates to snap back to near zero are going to be waiting a very long time.