US bond market is like a ‘slow moving car crash’, says Michael McCarthy | The Business | ABC NEWS
Influential market strategist, Michael McCarthy says investors are concerned “an inflationary spiral will break out” and require “drastic action” to contain. He says that drastic action would be US interest rates at 8 per cent.
Speaking with Alicia Barry on The Business, Mr McCarthy said the bond market is still flashing a red warning about the financial system, despite the calming down a little overnight, as yields eased from multi-year highs on falling oil prices.
In recent weeks, investors globally have bailed out of government bonds, sending yields spiking on worries about government debt levels, rising oil prices and inflation as well as the vast cash piles flowing into AI.
The Moomoo Australia and New Zealand chief executive has previously warned about the risks of another global financial crisis originating in the United States on The Business.
In this interview, he talks about the risk of an inflationary spiral breaking out. “If people think that recessions are bad, wait until we see the return of inflation because the damage it did in the 1970s, it restructured economies, it destroyed businesses, it saw people out of work for years at a time. If we see inflation take off, that’s the damage and destruction we’re looking at,” he says.
“It’s very clear at the moment the trend is towards disaster and unless there is radical action it’s going to be very hard to stop.”
When asked exactly what radical action would be needed, he says, “interest rates at 8 per cent… if US interest rates go to 8 per cent, Australian rates could go to 10 per cent. This might mean that we’re looking at a period of sustained higher interest rates to correct the imbalances that have arisen since the GFC.”
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