Wednesday, February 4, 2009
Why interest rates will go up and up
Carmen M. Reinhart and Kenneth S. Rogoff compare the current crisis with ones in the past...the real eye-opener is the massive surge typically seen in government debt. This isn't just down to bail-outs – in fact, it's mostly down to normal recession effects, such as unemployment payouts rising while tax revenues slump...Reinhart and Rogoff argue that "a near doubling of the US national debt suggests that the endgame to this crisis is going to eventually bring much higher interest rates [as investors demand higher yields in return for buying US government debt] and a collapse in today's bond-market bubble." The high level of debt will also mean "stunted US growth for at least five to seven more years".