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Rising Interest on Nations’ Debts May Sap World Growth



June 04, 2009 – Comments (1) | RELATED TICKERS: GROW

Rising Interest on Nations’ Debts May Sap World Growth

Increased rates could translate into hundreds of billions of dollars more in government spending for countries like the United States, Britain and Germany.

Even a single percentage point increase could cost the Treasury an additional $50 billion annually over a few years — and, eventually, an additional $170 billion annually.

This could put unprecedented pressure on other government spending, including social programs and military spending, while also sapping economic growth by forcing up rates on debt held by companies, homeowners and consumers.

“It will be more expensive for everybody,” said Olivier J. Blanchard, chief economist of the International Monetary Fund in Washington. “As government borrowing in the world increases, interest rates will go up. We’re already starting to see it.”

Since the end of 2008, the yield on the benchmark 10-year Treasury note has increased by one and a half percentage points, rising to 3.54 percent from 2 percent, the sharpest upward move in 15 years. Over the same period, the yield on German 10-year bonds has risen to 3.57 percent, from 2.93 percent. And British bond yields have increased to 3.78 percent, from 3.41 percent.

I told you that growth is going to be slower over the next several years than what we have become accustomed to over the past decade.  This is why it always boggles my mind when I read about analysts calculating the current value of a particular stock using "normalized" growth and earnings assumptions or when I see people trying to figure out how much banks will earn in a "normal" environment.

Ah hello, what many of us have become accustomed to as normal growth over the past decade is anything but normal.  Welcome to the new normal of slow growth.


1 Comments – Post Your Own

#1) On June 04, 2009 at 8:43 AM, kaskoosek (30.15) wrote:

In weimar Germany that graph corrected pretty quickly.


I would assume everyone knows how.

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