The Looming Debt Crisis Nobody Seems to Look At

Around the globe, we are approaching a monumental awakening as municipal governments see their borrowing costs rise dramatically with rising interest rates. This is unfolding in Europe, the USA, Canada, South America, Middle East, and Asia. In fact, S&P is predicting the first-ever default by a Chinese local government financing vehicle this year as LGFV borrowing costs rise onshore. Forecasters never predict the change in trend and also see next year as pretty much the same as the last. Yet we have been at a 5,000 year low in interest rates and that speaks volumes of risks ahead.

Across the board, our reversal system in interest rates is poised with sharp gaps. This is warning that an uptick in rates will lead to an explosive rally in overall rates and then we will see the costs of funding explode. So buckle up – we are headed to the other side of the storm. We have been in the eye where it is calm but now we are preparing to come out and rates will move upward faster than before.

Anyone who has floating rate mortgages may now want to look at locking it in at a fixed rate before rates rise too fast.