QUESTION: It seems much of the growth in private companies is being fuelled by debt. What is the affect after the Big Bang on these companies that are relying on borrowing to grow and expand?
ANSWER: We have been advising corporates to borrow as much as they can now and lock it in for rates will rise. Those companies that have fixed debt will do well. Floating rate debt or short-term will be the problem.
If our proposal would be implemented, the rates would be more stable getting the Feds out of the picture. The problem is the Feds have lowered rates to “stimulate” but this has lowered their interest expenditures of government. Any uptick in rates will have a profound impact upon national debts.
Government deficits will expand exponentially so we will have a real screwed up world with deflation and inflation combining from different sources. This is like that crazy line from Blazing Saddles – no body move or the black guys gets it! Central banks have totally lost control because government is the biggest borrower. The idea of raising rates to curb inflation sends their own debt up because the politicians exempt themselves from fiscal management. This is totally out of control and as soon as they raise rates, it is all over.That is wheninflation will appear when this become obvious we have a runaway train and central banks can do NOTHING.
Higher rates will now cause deeper deficits exactly opposite of a typical recession. This is getting wild.