Are Interest Rate Increases Threatening the Whole Economy?

Amy Mathews  |


Yet, few institutions and organizations seem troubled by this situation, and if anything, many are investing even more in areas that seem to contribute to the overall increase. According to predictions,the current situation will likely get out of control at some point, and we may find ourselves right in the middle of yet another recession.

The Importance of Low Interest Rates

There are many benefits for the market in a situation with low overall interest rates, as this tends to promote improvement and stability. A situation like this usually stimulates consumers to borrow more actively and to invest their funds in ventures that benefit everyone, while on the other hand, investors have better opportunities to borrow at low rates and improve their own businesses.

Research shows that stocks and real estate usually benefit particularly well, as they tend to see direct positive effects from high inflation rates. One look through a good car payment calculator is enough to show how this situation can benefit the consumer as well.

The Link Between Financial Crises and Interest Rate Hikes

History has shown time and time again that there’s a clear link between financial crisis situations and interest rate hikes, although the exact reason does not seem that obvious when studying the different incidents.

Charting the different properties of both the financial crises as well as the situation around interest rates at least makes it obvious that the former seems to be triggered by the latter. The technological industry also seems to be tightly linked to financial crises through its ups and downs, although that relationship is probably overstated in some ways.

Past Events

The US housing market burst is a good example of the above, although it’s far from the only one in history. The auto industry has seen similar issues in the past, and it’s been a particularly important player in situations of major financial crisis. Let’s not also forget the tech bubble burst, which led to a huge economic downfall that took years to recover from.

In fact, that recovery was only stopped by the housing bubble burst, and it looks like the economy has overall been dictated by a series of sharp rises and falls in the face of crisis situations for a significant period of time. Whether this will continue is hard to predict, although many are foreseeing troubles in the not-too-distant future as a result of the current issues that we’re facing.

While hiking interest rates may have some short-term benefits to those who directly profit from their increase, it’s a poor long-term strategy that will likely not lead to anything good. Of course, there are many situations where those hikes are not directly dictated by a specific entity but are rather the result of an overall shift in the market, and it’s important to be able to adapt to these changes and see them before they manifest themselves. Thankfully, modern technology can assist with those predictions quite well and it should be utilized to its full potential.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Comments

Emerging Growth

Margaux Resources Ltd.

Margaux Resources Ltd is a Calgary based resource company. The Company is focused on its Jersey Emeral Tungsten-Zinc property located in the southeast portion of British Columbia.