I am aware that this post is alarmist, none the less, I believe it is healthy.
What happens to countries in Debt (as most Western countries are) when the lenders decide they want their pound of flesh now?
The fact is, when you’re in a lot of debt, interest rates are either your lifeline… or your death sentence. So long as rates stay low, you can just about keep things on track. You can service your debts… keep borrowing… and keep the wolves from your door.
When rates move higher… you get squeezed… and eventually, you’re finished. All of a sudden, you have to find more and more money to cover the interest on your debt.
They say a picture tells a thousand words. Look at this:
Source: Bloomberg
This is an extreme example of what happens when interest rates take off. As you can see, in 2009, the Greek government could borrow money at just 1%. Then in the wake of the financial crisis, the Greek economy hit the rocks, fell into recession and the markets realised what a complete mess the country was in.
Interest rates shot up vertically. And Greece imploded. Not just financially, but socially and politically too...
As you’ve seen on the news, there have been riots, suicide, overnight poverty, snap elections and crushing general strikes. People couldn’t get their money out of banks fast enough, businesses collapsed. In that environment, just keeping your family safe is a big challenge. That’s the danger of rocketing interest rates to a country with huge debts.
As Douglas Carswell, MP, said recently: “Greece might be the first (the US and the UK are in the firing line) Western country to discover that you cannot keep running up debts to pay for a lifestyle you did not earn. She will not be the last. The laws of mathematics are universal.”
What happens to countries in Debt (as most Western countries are) when the lenders decide they want their pound of flesh now?
The fact is, when you’re in a lot of debt, interest rates are either your lifeline… or your death sentence. So long as rates stay low, you can just about keep things on track. You can service your debts… keep borrowing… and keep the wolves from your door.
When rates move higher… you get squeezed… and eventually, you’re finished. All of a sudden, you have to find more and more money to cover the interest on your debt.
They say a picture tells a thousand words. Look at this:
Source: Bloomberg
This is an extreme example of what happens when interest rates take off. As you can see, in 2009, the Greek government could borrow money at just 1%. Then in the wake of the financial crisis, the Greek economy hit the rocks, fell into recession and the markets realised what a complete mess the country was in.
Interest rates shot up vertically. And Greece imploded. Not just financially, but socially and politically too...
As you’ve seen on the news, there have been riots, suicide, overnight poverty, snap elections and crushing general strikes. People couldn’t get their money out of banks fast enough, businesses collapsed. In that environment, just keeping your family safe is a big challenge. That’s the danger of rocketing interest rates to a country with huge debts.
As Douglas Carswell, MP, said recently: “Greece might be the first (the US and the UK are in the firing line) Western country to discover that you cannot keep running up debts to pay for a lifestyle you did not earn. She will not be the last. The laws of mathematics are universal.”
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