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May and June are crazy months in our household.

Four birthdays. Our Wedding Anniversary. And this year we have our middle child’s Communion, as well.

And let’s not forget Mother’s Day and Father’s Day.

On top of that, we have overlapping sports as soccer season has officially started for all three kids, and gymnastics and dance haven’t ended yet.

Feel sorry for me, yet?

Of course, you don’t. Nor should you.

But this is my long-winded way of telling you that my newsletters may be a bit brief for the next several weeks.

I’m sure you will survive… lol

Yeah right, most of you are probably thinking “Then just stop sending me emails, already!” lol.

I refuse to stop. This is the only chance I get to say what’s on my mind.

And today what’s on my mind is…

Interest Rates!

Check out this chart…

This is what the Federal government in the U.S. is currently paying in interest on its debt.

Approx. $1.1 Trillion as of February 2024.

By the end of the year (if rates don’t change), this increases to $1.6 Trillion.

These are massive numbers!

And look how quickly this rose during the pandemic era.

What’s interesting is that historical interest rates have been much higher than they are today, yet the interest expense today is far greater.

This is because the amount of debt that the U.S. government carried in the past, is nowhere near what it is today.

So the combined effect of higher rates and a lot of debt is what’s driving these massive interest payments.

Before going forward, I should mention that the reason we look at U.S data is because…

  1. The data is more readily available and accessible; and
  2. when it comes to this stuff, Canada just basically does what the US does, anyway. When they raise rates, we raise rates. When they go more in debt, we go more in debt.

I can assure you that the Canadian version of this chart will look very similar.

I bet if the average Canadian household were to create a chart like this for its interest expenses, it would look very similar.

And if rates don’t move down, this chart begins to look even uglier…

Because low-interest debts (i.e. mortgages for the avg. Canadian household), mature and are renewed at higher interest rates.

This means that a lot more of the family budget will get allocated towards paying for interest on its debts (i.e. car payment, mortgage, etc).

And unless you find a way to make more money, then the extra amount that gets allocated towards your debts comes from having to reduce your spending in another area of your life.

It’s no different in government.

A lot more of their budget needs to be allocated to interest expenses as well.

And for that to happen, they either need to charge higher taxes, or cut back in other areas (i.e. funding for infrastructure, health care, education, etc).

Although there may be more moving parts when it comes to the balance sheet of the government versus the average household…

The mechanics are the same.

If income stays the same and costs go up in one category, then spending in another category needs to come down.

What is different though, is that governments pile on debt at a way faster pace than the average Canadian household.

And it doesn’t look like they will (or can) stop going further into debt.

Meaning, they are even more exposed to these high interest rates than the average Canadian.

So where am I going with all this?

Interest rates will come down. And I believe they will start to come down soon.

This is an election year in the U.S., and big spending promises will be made.

To fulfill those promises governments will need to allocate less of their budget on interest expenses.

The political pressure will be great, for the Federal Reserve/Bank of Canada to start reducing rates.

Rates may not come down as quickly as many would like… but I do believe we will start to see those cuts this year, and continue into 2025.

But that’s just my opinion… and I should warn you… I’ve been wrong way more times than I’ve been right.

All the best,

P.S. This week’s picture is the one I referenced last week but forgot to include. This was me on the bike watching the Rock Star Real Estate Your Life Your Terms Event.