Best to Exit Before Interest Rate Debt Elevator Begins Its Race Downward to HELL

Thursday, December 15, 2016
By Paul Martin

SilverDoctors.com
December 15, 2016

AGXIIK is back with a Warning:
If you don’t like the smell in the debt elevator you’d best exit quickly before it begins its race downward to Hell…

By SD Contributor AGXIIK:

In reality the only thing that precipitates crashes in the stock and bond market, blowing over over to the housing market IS the rise in interest rates.

I lived in the world of loans, rates, borrower qualifications and the consequences of same since 1975. Since 1970 I’ve been through half a dozen major crashes including the 1970 stagflation malaise, the 1980-3 rocket rise interest rates, 1987 market crash, 1989-93 S&L/ bank and real estate crash, 2001 tech wreck and the 2007-2009 mother all collapses that smashed real estate prices, the stock market and hundreds of major and minor banks.

That crash was one order of magnitude worse than anything of the last 20 years. As an aside, I recall Nixon’s 1981 Wage and Price and Price Freeze, his 10% income tax surcharge to pay for his and Johnson’s Guns and Butter idiocy, Ford’s in-execrable WIN Buttons (Whip Inflation Now–it should have said BOHICA), then 4 years of Jimmy Carter, POTUS Malaise, the Grim Creeper in a middy sweater, telling us how we all must accept a new era of mediocrity.

Rising interest rates were part of, OR, the entire set of events that precipitated these crashes. They either caused a crash or were the knock-on effect that created major failures in other currency, bond, loan, stock or real estate markets.

The bond and commercial loan markets are now an order of magnitude larger than the stock markets. Rates drive nearly everything in the world that affects us. When rates rise slowly, the cost factors grind relentlessly on all borrowers. Debt of this sort keeps people and countries poor for decades; even centuries. Sharp increases in rates can collapse entire bond markets and the countries to which the bonds are attached.

In almost all circumstances and situations, rising rates start the inevitable cycle of economic pressures that beget even further rate increases. We are so far under the historically normal 210 year rate of 5% on 10 year US Treasuries that a rate rise will probably shoot last the mean as the inevitable Reversion to the Mean races upwards, quite likely hitting 7-8% before its momentum is expended.

The Rest…HERE

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