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Former Debt Trader Wood: Soaring Interest Rates Will Devastate Economy

By    |   Thursday, 22 August 2013 07:11 PM

U.S. interest rates will keep climbing, and that's bad news for the economy, says Todd Wood, a former emerging-markets debt trader who now writes fiction.

The 10-year Treasury yield already has surged to 2.9 percent from 1.66 percent May 2.

"This is just the beginning," Wood tells Newsmax TV in an exclusive interview. "I've been saying for a while there's going to be an interest rate shock, . . . and it's going to be really devastating to our economy over time."

The 10-year yield's historical average is 6 to 6.6 percent, he says.

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The rate rise will put a damper on the housing market and stock market, Wood says. It will also make it more expensive for the government to pay back its debt.

"We haven't been paying a market rate for our debt because of the Fed's involvement, and now the market's going to take over and take rates where they should be," says Wood, who also is author of the novel "Currency" and was a special operations pilot for the Air Force.

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"The problem is we owe so much money that every percentage-point rise in interest rates is $160 billion-plus debt service that we're going to have to deal with. I don't think we can service this debt if we get up to a market rate."

As for the prospect of the Federal Reserve tapering its quantitative easing, "they can't grow their balance sheet forever," Wood says. "The benefit we're getting from . . . this Fed involvement is slowing, and again I just don't think they have a lot they can do at this point."

So is it time for the Fed to wind down its easing?

"It is. Unfortunately this country is going to have to deal with some pain," Wood says. "We've been kicking the can down the road and trying whatever way we can not to taste the consequences of our actions."

Fiscal policy is a mess, he says. "We're borrowing 45 cents for every dollar [spent], and we're not scheduled to stop for a long time. The market is realizing that we should be paying a much higher interest rate due to our credit risk at this point. The world is seeing that as well."

The solution is to "get our fiscal house in order, and that means stop spending money we don't have," Wood says.

Fiscal conservatives will win out in Congress, he says. "They're not beholden to K Street. They are beholden to the people, and that is a good thing. They are determined to deal with this fiscal issue."

Wood strongly opposes the Affordable Care Act. "If Obamacare's not stopped, America will default on its debt at a certain point — in the next 20 years," he says.

"We cannot afford this, and we will have some kind of credit event dealing with our debt, whether it's outright not paying interest or some type of devaluation."

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U.S. interest rates will keep climbing, and that's bad news for the economy, says Todd Wood, a former emerging-markets debt trader who now writes fiction.
Thursday, 22 August 2013 07:11 PM
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