Submitted by Taps Coogan on the 24th of October 2018 to The Sounding Line.
James Grant, of Grant’s Interest Rate Observer, recently gave a wide ranging interview to WealthTrack in which he discusses his outlook on credit markets and his concerns about the massive buildup in debt that has occurred over the last decade.
“It took rates exactly ten years to go from 2.25% in 1946 to 3.25% in 1956. Now already, we have gone on the ten-year from 1.375% to 3%. So rates have more than doubled in the course of two years. So the tempo… now would seem (to be) a bit more brisk… Mortgage activity has been dampened. Companies that have borrowed at floating rates are now having to re-budget. You know the federal government has got some debt and it has been paying the most concessionary rates. I think less than 2% on average. So, if the interest bill for the federal government were to go back to… 6%… on $18 or $20 trillion of market holdings, the interest bill would surpass the defense budget… Look at the number three (3% interest rates), of course it’s a small number, and it is small as measured against the evident rate of inflation. So, since the past 50 or so years, the 10-year treasury security has yielded something like 2.7% in excess of the rate of inflation on average… So the rate of inflation now is generously reckoned at… 2%… that would make the 10-year yield not at three-ish but at four-and-a-half-ish or higher and I think that would truly bite… People say, for that reason, it can’t happen. We cant afford that. Well, just because it would be inexpedient doesn’t mean it can’t happen.”
There is much more to the interview so enjoy it above.
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