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The BIG low-interest rate bet, and consequences

This is just one example of the consequences resulting from addicting the economy to zero interest rates for six years. A record amount of debt, inflation-driven central bankers, and interest rates that have been artificially suppressed at historically low levels cannot coexist. This is an incendiary cocktail that will soon explode in the faces of our central planners.

So we face the daunting collapse of all types of fixed income and high-yielding debt. As a result the real estate market will tumble as flippers are once again forced to dump their investment properties. The equity bubble will burst when the record amount of margin debt has to be liquidated.

All forms of adjustable-rate consumer and business loans will come under stress. Bank capital will be greatly eroded as bank assets go under water just as rates on deposits are increasing. The Fed will become insolvent as its meager capital vanishes. Interest payments on the national debt will soar, causing annual deficits to skyrocket as a percentage of the economy. And the over-$100 trillion market for interest-rate derivatives, in which Pimco now plays a big part, will go bust.

But you don’’t have to get caught on the wrong side of Pimco’s bad bet. A savvy investor can turn this into a market opportunity by betting that Wall Street and Washington’s fantasy of a normal economic recovery is about to collapse into a nightmare.

Source King World News

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