Only 28% Understand

Only 28% Understand                                                                                      Dec 2010

The U.S. Treasury and the Fed are both running out of rope. And now, the Fed is going to have to run its operations under far greater scrutiny from Congress. That’s because Ron Paul has been given control over the House subcommittee charged with overseeing the Fed.

This is all sliding to an inevitable conclusion. If interest rates start to ratchet up on our many debts, the government and the Fed have no bullets remaining with which to fight.

The Financial Industry Regulatory Authority “FINRA” recently asked the following question as part of a random survey of 28,000 folks around the country.

            If interest rates rise, what will happen to bond prices?

              2% preferred not to say

  5% said they would not change

10% said there was no relationship between bond prices and interest rates

18% said they will rise

            28% said they would fall          

37% said they did not know

 

Out of the entire sample, only 28% actually understand that rising interest rates are poison to bonds prices. Anyone holding them takes a direct hit to principal, effectively wiping out any yields they might have hoped to earn.