What Does Money Cost?

Original article by Kevin McElroy, Resource Prospector

According to the Wall Street Journal, each new $100 bill set to be introduced into circulation on February 10, 2011 will cost the Treasury 11.8 cents to produce.  Complete with holograms, security fibers, bells, whistles, kazoos and probably a computer chip or two, poor old Ben Franklin is starting to look a little perturbed with all of the baubles encroaching his paper real estate.

So it costs about 12 cents for the Treasury to make $100, but what does it cost to buy it?  That’s what the interest rate is: the cost of money.  Interest payments you make on money loaned to you is the price you pay for borrowing.  Nothing’s free, especially not money.

When the price of money gets higher, it signals a weakness in the forward purchasing power of the underlying currency.  The best way to protect yourself from a weakening currency is to buy commodities.  More on that in a second…

Marketplace interest rate increases at banks, for mortgages, as well as for corporate bonds always follow rises in Treasury bond rates.

If long term bond rates rise, it means that folks who lend money to our government are demanding higher returns on their principle.

Higher interest rates also signal bad news for the stock market.  It means that borrowing for every business becomes more expensive.

Additionally, bearish news for stocks is almost always bullish news for commodities.

So where is the cost of money headed?  I can say for regular folks like you and me it’s already much higher than the .118% rate the Treasury pays for each $100 bill.  And right now, long-term interest rates are beginning to rise.