by Michael Arbow MBA
Partner, RSD Solutions Inc.
As a follower of our blogs you know our views on rising energy and commodity prices and how this will impact those firms that depend on them in the creation of their firm’s products. We also know that this rising tide of wholesales prices will eventually push up consumer prices leading to increases in consumer price indexes (inflation) which in turn will cause interest rates to rise. You could say that this is (money) supply side induced inflation caused by several of the Western world banks introducing quantitative easing.
In an excellent article in McKinsey Quarterly (link below) their analysts also look at another catalyst for higher interest rates – namely the lack of savings which will be structural in nature. It is argued that with the Western world’s aging demographic spending (on health) will increase as will the amount of money put aside for food and energy. All of this will reduce the amount of money available to be saved and thus force borrowers to increase interest rates to incent what few savings are out there.
With a strong case that interest rates will be going up, how is your firm’s financial risk management preparing for this and how do they plan to push back the day of reckoning?
For a link to “The era of cheap capital draws to a close” click:
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