these are not internally consistent-- that is 2 and the others:
Higher interest rates will not result in even more borrowing -- nuts -- it will result in less borrowing and more funds to service existing variable rate debts => less consumption => improvement of the import side of the trade deficit (i.e. a reduction of imports). Collapsing housing will bring even more pressure to bear AGAINST increasing imports.
>>2) Exacerbate America's "Twin Deficits" - Due to the short-term nature of Americas outstanding debt instruments, higher interest rates will increase both the budget and current account deficits, as higher interest payments are required to service maturing debts. Also, the recession itself will add to the deficit, resulting in even more borrowing at even higher interest rates.
3) Collapse the housing, stock, and bond market bubbles - Asset bubbles depend on low interest rates and continued speculation to sustain their inflated prices. When the bubbles burst, the shockwaves will reverberate throughout the entire economy. Individual household net worth's will be turned upside down, with reverse-wealth effects restraining consumption for years to come. The entire financial system will be at risk, as asset prices fall too low to secure the debts they currently collateralize. In addition, as the cost of servicing those debts grows, an increasing amount will default, exerting further downward pressure on prices.
4) Cause millions to lose their jobs - Since the majority of American workers depend on the discretionary spending of other Americans, millions will be unemployed. Especially hard hit will be mortgage and consumer finance, home building, real estate sales, financial services, travel, entertainment, and retailing. In other words, just about every American.<< |
