The Party's Over: The Financial Czars Messed Up Big Time

“The problem with socialism is that sooner or later you run out of everyone else's money.” - Margaret Thatcher

In life perception is everything. For some people the ‘sky is falling’ when it comes to finances. Some people are panicking as they see their mortgage interest rates going up precipitously. In Australia, those with variable interest rate mortgages have seen the rates double in a mere five months. Now you may say, that rates are so low 4.5 to 5%, when we compare it to the 17-28% rates in 1980. As I said perception is everything.

People have been lulled into a low interest rate environment. So when rates double, they hit panic stations. Of course, today home prices are many times what they were in 1980, so in practicle terms, servicing a loan is becoming almost as difficult as it was in 1980. If rates continue upward, as is expected, then people will find themselves in a similar situation. Let’s remember that home prices have gone up three to four times as much as wages. So it’s all relative.

Governments are now finding themselves in the same boat; lulled into easy money because of cheap interest rates. Cheap money encourages more money-printing and more spending, and guess what that leads to? Inflation.

Australia’s government debt is growing at an exponential rate. You can view the debt clock here.

Total Government Debt

$1,588,431,275,176

National Government Debt

$1,020,959,817,001

State & Local Government Debt

$183,683,991

As bad The prolific spending and restriction of energy which has driven up energy costs is causing a rampant inflation, not just in America, but throughout the world. With interest rates rising, it will cost a great deal more for countries to service the debt. The U.S. will be crippled by soaring interest rates.

I stated for some time that unheard of low interest rates would come back to bite us. Not only were government central bank czars acting irresponsibly with the low interest regime, they’re throwing fuel on the fire with reckless spending.

Australia is in a bind, because its dollar is collapsing. Six months ago it sat at 76 cents to the U.S. dollar. Today it is 64 cents. In order to support the dollar, the Reserve Bank of Australia needs to prop up the dollar with increasing interest rate hikes. A low dollar also increases inflation because it drives up the cost of imported goods.

What is also concerning is that in most cases it takes years to return to low rates of inflation once the inflation horse has bolted out of the gate.

The last time that Australia had a high inflation was in 1980. It took 12 years before it returned to a low inflation target of 2%.

There is no easy way to sugar-coat it. The central banks let us down badly. They failed to recognize the tsunami that was looming ahead. They were warned, but failed to listen. Now they are in a panic, trying to head off the inflationary storm.

As bad as this looks, Australia’s debt to GDP is one-half that of the U.S., which currently sits a 107%. The prolific spending and energy restriction, which has driven up energy costs, is causing rampant inflation in America and worldwide. Rising interest rates will cost countries more to service their debt. The U.S. will be crippled by soaring interest rates.