What happens when interest rates rise?

The 1920s saw borrowing to invest in equities that ended in a stock market crash and the Great Depression. The mistakes were repeated in this decade with borrowing aimed at the rapidly emerging derivatives market.

Housing has seen a correction from the exuberant borrowing on mortgages in the UK and USA, but an over leveraged sector still exists: government and consumer debt.

The fact is that UK and American consumers have borrowed heavily from their futures to spend on the high life of the past ten years, and the time is approaching for the debt to be repaid.

National economies will start to grow again, possibly as soon as next year, and the extra money that has been injected via quantative easing, to stimulate this recovery, will need to be removed.

Unfortunately I doubt our fiscally weakened Government can buy back all the issued debt quickly enough, and interest rates will have to rise sharply to control increasing inflation as growth accelerates.

It’s at this moment that the general public will realise how broke they really are, as loans start to be harder to maintain. As a consequence the housing market will take another downturn as people try to realise some badly needed capital.

Our currency will devalue relative to newly emerging economies, and we’re going to have to learn to live in a poorer nation than we’d like to believe, but then maybe it’ll be a fairer world.