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Why I think the rate hikes will continue until 1%.

January 25, 2016

Why I think the rate hikes will continue until 1%.

by Lushfun

Right now we are having a very severe shift in the global paradigm as it relates to money. For too long the eased monetary policy created a perception that access to credit globally for business and anyone else was a given. Asset prices began to trade not on what you could get from them but how you could finance them. Having equity in a sense became secondary to having access to credit. It does not matter if you can pay 30 grand cash for a car if everyone competing with you can either get a loan or have it leased by the company for a payment, your advantage is nil.


Going from essentially 0% on the “safest” parking of cash to 1% is essentially a change of infinity. Ergo the value that permeates society that should be placed on cash will have to drastically change. Perhaps not right away but slowly and surely since there will have to be placed some utility on it in regards to a more limited access to credit and credit’s higher price in the form of marginal difference vis a vis the interest rate.


A lot of pressure in this dynamic is essentially placed on everyone whom is already thoroughly borrowed out to their max as their interest rates rise and the re-financing to anything lower or similar is not available. Some of these relationships will implode since they were predicated on the credit being refinanced by some other fool later on, unfortunately that access is gone and you’re the fool holding it today.


Asset prices gyrations have already began. Real Estate is going to have a gulp moment when the properties that close on margins begin to drag down the prices for the rest. They could ignore them but what will clear the market will force aggregate revaluations bringing back a lot of pressure on whom buys, at what price, where, when, and most importantly in relation to what kind of inventory available. Basically inventory will matter once again since time and costs in regard to what is available will no longer be shifted to those whom buy as they are now. If anyone noticed how prices keep getting jacked up slowly every few months but the property keeps being unsold it is simply updates in relation to what is around by both the greed and mendacity in regard to inventory.


But we shall see.


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