Tuesday, December 27, 2011

Economic danger

The U.S. and indeed, the entire western world are in economic danger. The debt is almost unmanageable. The Fed will not raise interest rates, simply because they CAN’T. Just think of the U.S. debt as a large A.R.M. (Adjustable Rate Mortgage) Many people get into trouble because the interest rate can rise after the initial period of the loan. The payment goes up very rapidly if rates go up quickly. And the debt the U.S. government has issued is so large that if the interest rates go up any significant amount, the payment due will explode exponentially. The only way to pay will be to issue more currency. The risk of hyperinflation could easily become a reality. So the Fed will not raise the rates unless absolutely forced to. The big question is, how much time do we have?

It can only be a matter of time before interest rates begin to rise. It is a natural cycle and cannot be held off indefinitely. The situation could be made much better if the various governments went on large restricted spending diets. This would probably cause economic disruption and a major downturn in economic activity. However, it would be far more limited in impact and duration than if forces outside of our control triggered the downturn, particularly if hyperinflation becomes a reality.

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