Interest rates at 8 percent in 2012?

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investorzzo's picture
investorzzo
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Interest rates at 8 percent in 2012?

Most households would crumble if interest rates hit 8% and prices rose by 10% a year. But that nightmare could come true, says historian Dominic Sandbrook...

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unemployed outside a Job Centre in the 1980s recession
Lessons from history: The last Conservative government from 1979 should remind us that rates can go up - and up, and up.

 

For most of us, it is hard to imagine that one day we might be pining for the 'good old days' of summer 2010. With the recovery faltering, the deficit yawning and the Treasury axe being sharpened, you might have thought that the present economic picture could hardly get worse.

But if one expert's chilling prediction is right, then far grimmer times may lie ahead for British homeowners. As if they did not have to shoulder enough burdens already, they could end up facing mortgage repayments three times today's level, with horrific consequences for our economy.

http://www.thisismoney.co.uk/news/article.html?in_article_id=512696&in_p...

Davos's picture
Davos
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Re: Interest rates at 8 percent in 2012?

If rates go up the cost to rollover our debt (deficit) would be the kiss of death.

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Nate
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Re: Interest rates at 8 percent in 2012?

How much of the household debt is set at a (very low) fixed interest rate?  Everyone I know has fixed rate mortgages and almost zero credit card debt.  Corporate America is busy refinancing and going long term.  I do not have a feel for the average individual, but I suspect that the entity hurt the most will be the US government.

 

 

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machinehead
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Re: Interest rates at 8 percent in 2012?

Here's a rather horrifying scenario of how interest rates could go not merely to 8%, but 80% or 800%.

Everyone is aware of the idea of a “Treasury bubble” making the rounds. A lot of people—myself included—think that the Fed, the Treasury and the American Zombies [banks] are colluding in a triangular trade in Treasury bonds, carrying out a de facto Stealth Monetization: The Treasury issues the debt to finance fiscal spending, the TBTF banks buy them, with money provided to them by the Fed.

Whether it’s true or not is actually beside the point—there is the widespread perception that that is what’s going on. In a panic, widespread perception is your trading strategy.

So when the Fed begins buying Treasuries full-blast to prop up their prices, these asset managers will all decide, “Time to get out of Dodge—now.”

Note how it will not be China or Japan who all of a sudden decide to get out of Treasuries—those two countries will actually be left holding the bag. Rather, it will be American and (depending on the time of day when the event happens) European asset managers who get out of Treasuries first. It will be a flash panic—much like the flash-crash of last May. The events I describe above will happen in a very short span of time—less than an hour, probably. But unlike the event in May, there will be no rebound.

http://gonzalolira.blogspot.com/2010/08/how-hyperinflation-will-happen.html

Flash Crash in T-bonds? Man, is that gonna bust some heads! Surprised

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Davos
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Re: Interest rates at 8 percent in 2012?
Nate wrote:

How much of the household debt is set at a (very low) fixed interest rate?  Everyone I know has fixed rate mortgages and almost zero credit card debt.  Corporate America is busy refinancing and going long term.  I do not have a feel for the average individual, but I suspect that the entity hurt the most will be the US government.

 

 

I've been reading "The Secrets of the Temple" about the Fed. I was amazed at what Volkers rate hike did to the economy. High rates will be the kiss of death for the govt. yes! But it will destroy businesses like it did in the 1970s. Also, remember consumer real wages are below 1973 levels, credit has become the bandaid for making ends meet. High rates will kill people making purchases.

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Jager06
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Re: Interest rates at 8 percent in 2012?

Whats the alternative?

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machinehead
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Re: Interest rates at 8 percent in 2012?
Davos wrote:

I've been reading "The Secrets of the Temple" about the Fed. I was amazed at what Volkers rate hike did to the economy. High rates will be the kiss of death for the govt. yes! But it will destroy businesses like it did in the 1970s. Also, remember consumer real wages are below 1973 levels, credit has become the bandaid for making ends meet. High rates will kill people making purchases.

I remember a full-page ad in the Wall Street Journal, placed by Lone Star Steel. It was in March or April of 1980, when the prime rate hit 19%, then 20%. The ad's headline went something like this:

 

20% prime rate -- POISON for the economy!

Currently the economy is 'enjoying' (?) some of the lowest interest rates since the early 1950s. But these low, low rates can't last in conjunction with endless deficits --- something's gotta give.

When rates rise again (as they must eventually), most people will be as shocked, disgusted and appalled as Lone Star Steel was, thirty long years ago.

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that1guy
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Re: Interest rates at 8 percent in 2012?

Also keep in mind that in england they dont have 30yr fixed rate home loans. They are ALL ARM's, just different time spans is all. So when the time comes and interest rates shoot through the roof no one can hide, execpt for the small few they were lucky to lock in 3-5 more years right before the rate hike. That said, they had better hope rates go back down before their locked in time is over, or they still get caught.

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