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Four Years Of Low Interest Rates Have Encouraged Return Of Kind Of Risky Investments Seen Before Crash

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http://www.theguardian.com/business/economics-blog/2013/oct/24/mild-panic-city-interest-rate-rise-nears

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Higher interest rates cannot come too soon for the band of analysts who view the current situation with alarm.

Albert Edwards, Société Générale's global strategist, argues in a note for clients that four years of low rates have encouraged a return of the kind of risky investment behaviour that we saw before the crash. He cites evidence, albeit anecdotal, that the crazy derivatives favoured by traders prior to 2008 are in heavy use and posing a distinct danger to the stability of world markets. He calls as evidence an interview in the Financial Times where Craig Parker, head of leveraged finance at Goldman Sachs, says: "We're in the third year of the greatest leveraged finance markets of all time because of the efforts by the Fed, and all the central banks around the world, to keep rates at zero."

Edwards believes there are signs of asset bubbles everywhere and the US, the UK and Japan are standing on the edge of a precipice, much as they did in 2006.

Making matters worse is the seductive charm of low interest rates for governments. Most western governments have borrowed heavily in the last four years. The UK has doubled its debt mountain and is still running a considerable annual budget deficit.

Public-sector-debt-issuan-001.jpg

He just believes there are signs of asset bubbles... Everyone is now hooked on low interest rates, as recessions have been banned it's hard to see how anyone can get out of this mess.

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So when will interest rates rise?

When it is forced upon them externally. They won't vote for it themselves, though I doo see lots of massaging of unemployment figures to the upside so that they have an excuse to increase if they wish.

A token 0.5% rise or a slight decrease in the QE would only increase confidence as it would show that the centeral banks are in control.

The centeral bankers are paranoid about wage and consumer credit deflation, but I think it's clear that no matter how much money they print they will not be able to stimulate either of these.

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When it is forced upon them externally. They won't vote for it themselves, though I doo see lots of massaging of unemployment figures to the upside so that they have an excuse to increase if they wish.

A token 0.5% rise or a slight decrease in the QE would only increase confidence as it would show that the centeral banks are in control.

The centeral bankers are paranoid about wage and consumer credit deflation, but I think it's clear that no matter how much money they print they will not be able to stimulate either of these.

Or it could trigger a stampede for the exits.

A sudden rush to refinance £200 billion of mortgages could be interesting..

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