A double dip for the housing crisis.
And even reduced business investment and rising unemployment.
Many US oil companies will get crushed. Their four-decade-long currency advantage will be gone.
And in the midst of it, soaring interest rates will create a cascade effect around the economy, crushing certain investments.
- Supposedly "safe" long-term bonds will be hit. Anytime interest rates rise, bonds with low yields get hurt the most. That means virtually every bond you hold today will be worth substantially less.
- Stocks in general will take a major dive. Just think how badly stocks are hit when the Fed even hints at a rate rise. Now imagine what happens when rates suddenly jump 4% or 5% all at once.
- Certain blue-chip dividend stocks, no longer the only game in town for a decent yield, could see a major exodus of investors. Utility companies often carry high debt loads and could get hit extremely hard if they need to refinance in a high-interest economy.
- Real estate will head south. Whenever interest rates rise, homes become more expensive. Fewer people can afford them, and the markets collapse. We saw it in 2007 to 2008, and we'll see it again.
All you need to do, to understand how this could well play out, is look at "The Nixon Shock" in 1971. Once the dollar was no longer backed by gold, the fallout was almost instantaneous. From 1972 to 1973, oil prices rose 300%. Meat prices were rising at a 75% annual rate. The price of a bushel of wheat rose 240%.
"The Misery Index" (i.e. the combination of the inflation rate plus the unemployment rate) from the mid-1970s? With inflation going through the roof, by 1974, Gerald Ford took office with a Misery Index of almost 18%. The disastrous US economy hit New York City so hard, it teetered on the brink of bankruptcy in 1975. Remember the Daily News cover headline from 1975: "Ford to City: Drop Dead" "Vows he'll veto any bailout." After taking office in 1976, Jimmy Carter saw the American "Misery Index" skyrocket to over 20%.
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