Report Get Used To U.s. Yields Nearer 4% Than 2% in House prices and the economy Posted June 12, 2013 I'm wondering if this is going to be the straw that broke the camel's back. Once investors start demanding a normal, healthy above-inflation return on their investment in US government debt, which is supposed to be the safest possible investment class, everything else has to go up too. Why would you loan anyone else cash if it's more risky than loaning it to the US government and is also paying a lower rate? It causes a cascade of other things to happen. Rates go up across the board. Taking it further, this puts stress on other areas of the system which could be enough to make them go pop. It also calls into question those other highly indebted countries like the UK, so could force up the government's cost of borrowing. This could cause a loss of confidence in the UK's ability to repay its debts without having to fire up the printing press to inflate it all away. But that simply means investors will demand a higher yield to make sure that doesn't happen. You then have to look at the UK banks. Why bother lending out cash on mortgages to get a measly 2-3% return (below inflation), when they could simply lend it to the US government for 10 years and get 4%? So the UK government could struggle to raise the funds they need to keep going. This might force them to look very carefully at what they're spending their cash on. Anything that isn't essential could face the chop, including such things as stupidly extravagent mortgage guarantee schemes that put them right in the firing line if/when house prices go pop. I think it will be interesting, to say the least. Once the herd is spooked, even governments can't control the markets.