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OK what is wrong with this idea? High rates increase the debt repayments for all debtors, the largest of which is the USGovt. An entity which has, as it happens, dramatically increased the proportion of its debt that is short-term, a move designed to lower interest costs. This also exposes the US to huge rate-risk as they must roll this short-term debt frequently. They cannot risk higher rates, possibly ever. What they would ideally like is high inflation combined with low rates, to inflate away the value of all those trillions in debt while keeping interest payments down... My sense is that the belief that Central Bank policy can insulate investors from any and all risk is now wearing thin. Finally. After a very long wait for those of us who always knew it would. If true, this has profound implications that will quickly become apparent. As long as traders believed that the CBs would always be willing and able to save the day in case of any market pullbacks, why not leverage up and go all-in? It's been nearly impossible to lose money in the stock/bond/property markets over the past 5 years. Many/most traders know that the CB's have been blowing a massive asset bubble over the past few years but they also believe that they're smarter than everyone else and will be able to sell before the crowd when the bubble starts to pop - so why not, as former Citigroup CEO Chuck Prince memorably put it, 'Dance as long as the music is playing'?
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