Consumers are experiencing some of the lowest rates in recent history on things like homes, autos and personal loans so it is a great time to go in debt. One the other hand, the best money market rates and any interest paying vehicle pays very little so people with money are upset that they are making so little.
One of the questions people always have is “when will interest rates go up“? There are a variety of factors that contribute to why interest rate fluctuate in today’s market but it has a lot to do with the availability of money in our economy. In general economic terms, supply and demand dictates the price of goods. When there is a lot of something, prices are generally lower and when a good is scarce, prices tend to be higher. The same can be said for money as a product.
When consumers borrow money, they are in essence purchasing the money and paying for it in the form of interest when they make payments on a loan. Because the supply of money in the U.S. is abundant, money is cheaper. Typically when money is abundant or in high supply, interest rates are low.
So there is an ample supply of money but why is this so? As with the supply of money, a variety of factors influence why there is a large availability of money in America. One potential reason is the flow of money from other parts of the world. When more money is flowing overseas to Europe, Asia, Japan and other world economies, that means there is less money in America to lend which in turn causes interest rates to go up.
Money can flow overseas from products, services and other forms of trade. For example trillions of dollars have been going into the middle east for oil over the past century. This activity has increased in recent decades and is said to be one of the largest transfers of wealth in history from the west to the east. It doesn’t take much and even the change of a few percentage points of the amount of money changing hands can cause interest rates to go up or down.
World economies can change virtually overnight so it is important to take advantage of low rates while you can. Historically rates have fallen and stayed low for a time however they can always fluctuate and have. Now that rates are lower it is the perfect time to refinance, buy a new home or car before money changes hands and rates climb again.
