QUESTION: Dear Sir,
In connection with official and real interest rates:
For us, the ordinary people, how can we benefit or lose from this situation? As it seems on first site that it simply deals with big boys (gvmnts, banks, etc)
ANSWER: Our client base is probably the most diverse in the financial world. There is a split between the fake rates of government and the real-world rates of the private sector. The little guy has NEVER materially benefited from the decline in interest rates because the banks never lowered the rates they charge consumers in proportion to the decline in official rates.
The consumer-level actually sets the tone for the big boys. Governments are hopelessly caught in a crisis drowning in debt and there is no possible way we can climb out of this without major problems and structural reforms.
Understanding we have a Sovereign Debt Crisis is the first step in framing your strategy. Stay away from government debt.
Next, understand that the broader trend will be toward higher interest rates. If you are a borrower as in a mortgage, that means you want to lock it in and do not sign up for any floating rates where you have to pay. If you are a lender, then you do not want to lend out at fixed rates.
Understanding there is a debt crisis, this means you need to develop a strategy of moving to the private asset classes.
The big boys will follow consumer trends. The government will try to convince everyone that they have control. This is simply a game of poker where you can bluff and win with a losing hand if you are good enough. That is the trick governments have been playing on everyone.