Commentary: Big Tent Ideas

EJ ANTONI: All I Want For Christmas Is A 2% Interest Rate

No featured image available

After the most expensive Thanksgiving ever, the financial pressure on Americans isn’t letting up. While retailers are enticing customers with the usual Black Friday deals, many Americans don’t have the cash to afford even what’s on sale. They’ll be borrowing to do their Christmas shopping, at a time when credit-card interest rates are at a record high and delinquencies are rising at the fastest rate in over a decade.

Bidenomics is the reason why credit card debt today is over $1 trillion for the first time ever, even amid punishingly high interest rates. In pursuing the far-left goals of the Biden administration, the government spent, borrowed, and printed trillion of dollars, spawning 40-year high inflation. As prices rose much faster than wages, people’s purchasing power, or what they can buy with their earnings, plummeted.

To make ends meet, Americans resorted to buying necessities, like groceries, with credit cards.

Then, to combat the inflation it helped cause, the Federal Reserve increased interest rates at the fastest pace in decades, and that compounded the pain for many Americans by increasing borrowing costs. Between the lost purchasing power and higher interest rates, it’s as if the typical American family’s annual income has been slashed by $7,300.

With no savings left, Americans are poised to go further into credit card debt to do their Christmas shopping.

But higher interest rates on consumers isn’t even the right way to fight inflation. Instead, the Treasury Department needs to spend, and therefore borrow, less while the Fed sells off its US Treasuries much faster. The growth of government spending is what caused the problem, and reducing government spending will fix it.

Sadly, the Fed has chosen to strangle the private sector for capital while the Treasury continues its breakneck pace of borrowing. The result has been a dramatic rise in interest rates for consumers and businesses, thereby increasing borrowing costs on all kinds of credit – investment loans, credit cards, auto loans, student loans, and especially mortgages.

The rise of interest rates on a 30-year mortgage from about 2 percent to nearly 8 percent has drastically increased the cost of owning a home. Between higher interest rates and inflated home prices, the monthly mortgage payment on a median price home has more than doubled under Mr. Biden. It now costs over $13,000 more—per year—for the same house.

The dream of homeownership has turned into a nightmare for countless Americans. According to the Federal Reserve Bank of Atlanta, there are only three major metropolitan areas in the entire country where the median price home is considered affordable.

For those who locked in a low mortgage rate before Bidenomics ravaged the country, they are reaping the benefits of the last administration’s economic policies. For them, a mortgage is a path to building wealth and the equity in their homes is a valuable reserve of liquidity that can be accessed with a home-equity loan in case of emergency. That’s not the case for someone trying to get a mortgage today.

Similarly, credit cards can serve as an important lifeline when people find themselves unprepared for a large expense, such as a medical bill or when a large appliance needs to be replaced. The lower interest rates on credit cards four years ago meant that Americans could pay off their debts with much less pain.

But credit-card interest rates are at a record high today, so it is far easier to fall into a debt spiral where monthly financing charges alone exceed what the account holder can pay towards the card. That causes the outstanding balance to grow, even if no more purchases are made on the credit card.

For many American consumers and businesses alike, the best gift they could receive this year would be lower interest rates. Alas, that is highly unlikely given the Biden administration’s continued pursuit of its far-left agenda and a Fed that doesn’t understand monetary policy.

Until there are major changes in Washington, the Grinch of higher interest rates will continue dampening Americans’ holiday spirit. But at least the Grinch had the decency to only rob from people around Christmas—these higher interest rates extend the pain to the whole year round.

E.J. Antoni is a public finance economist at the Heritage Foundation and a senior fellow at Committee to Unleash Prosperity.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.