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May 20, 2018 | Debt service costs are a function of rate and amount owed

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

Those saying that the recent rise in interest rates is still inconsequential because relative rates remain below historic averages, are ignoring that debt service costs are a function of rate and the amount of debt outstanding.  With record debt at every level in pretty much every country today–consumers, corporations and governments–every rise in rates equates to a significant increase in debt service costs and less discretionary cash flows for other spending, saving and investment.

 

Pretending otherwise is whistling past economic graveyards.  The chart beside shows the 47% increase in just US consumer credit over the last decade.  Doug Kass explains this math below.

Doug Kass, president and founder of Seabreeze Partners, discusses a “new regime of market volatility” and the impact of the rising 10-year yield. Here is a direct video link.

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May 20th, 2018

Posted In: Juggling Dynamite

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