Sunday, January 5, 2014

Higher Rate Will Kill the Economy

Investors really do need much higher yields to offset all the risks that come with holding dollar-denominated debt. The US economy, over the last decade, has taken a lot of abuse with market interventions and various types of central planning. But if there is one thing the economy cannot handle, Eric, it is higher interest rates.

The economy is already teetering with too much debt. It cannot satisfactorily carry this debt load even with interest rates at these low levels. And it is important to note that the economy is carrying more debt now than it did at the peak, before the 2008 financial collapse. So higher rates will kill economic activity.

Few today remember the impact of higher interest rates when Paul Volcker was appointed to head the Fed back in 1979. Higher interest rates literally convulsed the markets. Mr Volcker’s sky-high interest rates did save the dollar from collapse but the consequences were horrendous. The direct result was the 1981-82 recession, which until the 2008 financial crisis was the deepest post-World War II collapse.

- James Turk via King World News, read more here: