The Fed just announced that they are increasing the discount lending rate half again– from .5% to .75%. Here comes phase two of the economic crisis. The US Government last year had a record deficit, increasing the debt by 16% during the last 12 months, despite interest rates dropping 13%, from 3.811 to 3.326 over that same period.

What does this mean? The government paid $383 billion in interest on the debt in 2009. If rates were to rise to pre-recession rates at say 4.188% (the rate for September 2008) interest payments on the debt would rise to over $550 billion. Obama’s projected deficit of $1.5 trillion would balloon to $1.7 trillion, further increasing interest rates and the nation’s debt.

Hello inflation.

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