Interest Rate Time Bomb???? When will they have to rise?

It’s been a while since we here have addressed the issue of how long these historically low interest rates can exist, and now that many Piggington predicted events have taken shape, I wanted to get all of your ideas and comments on how long rates can stay low, when will the fed and the rest of the world start to address inflation, and how it will affect our economy and obviously the RE market.

So, many piggs have predicted things like the numerous fed rate cuts, stimulus plans, a boom in oil/energy prices, and also in commodities, food, and metals. We also have come to expect a decline in the dollar, trouble for the financials, a credit crunch, a slowdown in consumer spending, and an up tick in unemployment. There has been some great advice on this site in regards to these issues, and many people have gotten things right. Obviously, the housing decline is going on as stated by the piggs, when most others doubted it was possible back in 2005/2006.

One thing I can’t understand are rates, and where they are headed. Obviously, we know HOW BIG of an impact rates play on the value of homes, but I think it will help us going forward if we can begin to understand where rates are headed? This includes the fed funds rate, the libor, the 10 year rates, and for us, most importantly, how they will affect the 30 year fixed mortgage rate.

Now there is no doubt that inflation is running wild, with nearly new records being set every week for either oil, gas, rice, beef, corn, wheat, coal, copper, etc, not to mention health care, and various other expenses that are rising and increasing the cost of living. In the past, the fed has had to raise rates substantially to fight inflation, this time, they seem to me to dismiss it, and instead blame rising costs on other factors including “energy and food prices are just volatile, get over it”. When will main street Joe and corporate wall street have enough of this? Shouldn’t they be forced to cut back on things. I guess the inflation has a lagging effect, and maybe we won’t see it for a while, but eventually $4.00 gas has to wear on the average family? The more people have to set aside for these rising commodity costs, the less they have to spend on discretionary items like ipods, a $6.00 Starbucks latte, and that Coach purse that the wife has been eying… am I right? And won’t these spending curbs result in even more unemployment in the future? It seems to me that a recession is unavoidable any way we look at it, eventually rates will have to rise to address inflation, and perhaps it is a good thing. Maybe then there will be a bigger incentive to save, starting a change for the better in one of the most faulted ways of the average American.

Is it time for the fed to worry about the dollar or are we gonna stay at these historically low rates for years? I would love to hear everyone chime in and give some commentary. Take a look at the chart and let me know what you think? Historically, it looks like we have a way up to go if need be, but I know that the fed needs to worry about “GDP growth” and unemployment, so maybe they will keep dropping rates, and holding them there for a while. Could this be something that our current gov. is trying to postpone until the next pres. takes office?