by John Rubino, DollarCollapse.com:
Interest rates soared again last week. This weekend a lot of people are running a lot of numbers and getting some terrifying results.
It seems that the past few years of falling interest rates have lulled a big part of the global economy into financing with variable-rate debt. So when interest rates go up, there’s a world-wide reset in interest costs that, best case, amounts to a tax increase on individuals and businesses and, worst-case, threatens to blow up the whole system.
The most familiar but least worrisome part of this story is the adjustable rate mortgage, or ARM, which is basically a teaser-rate home loan that rises over time towards the prevailing 30-year fixed rate. This rate jumped from 3.5% to 4.5% in just the past month, which means ARM resets are now aiming at a higher target. For ARM holders, the resulting higher monthly mortgage payment is exactly like a pay cut or tax increase, leaving less around at the end of the month for new cars, vacations, etc. So discretionary spending drops and, other things being equal, the economy slows down. This is serious for a system that, when evaluated using real numbers (see Shadowstats.com) is already in recession.
Please follow SGT Report on Twitter & help share the message.