China is selling US Debt, so more dollars are on the market.
Since we've been keeping interest rates at zero for some time for political purposes, we lack a lot of controls (ie. interest rates adjustments) to smooth out whatever fallout takes place.
The risk is that rates might go up. That isn't the end of the world, but will have a negative impact on stocks. As a citizen, the impact varies based on your position. If you refinanced your house with a 30-year fixed, you're good. If you're on a interest-only ARM, not good.
> The risk is that rates might go up. That isn't the end of the world, but will have a negative impact on stocks.
There are more effects on the general economy than just the negative impact on the stock market (the direct stock market is one of many direct manifestation of the diversion of investment dollars into Treasuries instead of other investments as Treasury yields increase); upward pressure on interest rates -- that is, an increase in the market-clearing cost of financing given the same demand for financing -- means less financing happens, and thus less of the economic activity dependent on that financing happens, and there is a general economic slowdown, job losses, etc.
You have junky companies like Amazon, for example, on a decade long binge of expansion, whose plans depend on cheap access to capital. Their only way to deliver profit is by achieving near monopoly status. Why are we subsidizing that behavior?
We have a government on a spending binge, again fueled by cheap access to capital. How is slowing down that train a bad thing?
If you look back historically, we have had plenty of boom cycles without the "record low" rates. It's not the end of the world as we know it.
> You have junky companies like Amazon, for example, on a decade long binge of expansion, whose plans depend on cheap access to capital. Their only way to deliver profit is by achieving near monopoly status. Why are we subsidizing that behavior?
On the other hand, most companies are having a hard time investing in their own businesses and are instead buying their own shares to boost EPS. Companies that spend a lot to expand their business are good for the economy, so Amazon has a leg up on most firms there.
> We have a government on a spending binge, again fueled by cheap access to capital. How is slowing down that train a bad thing?
The government isn't on a spending binge. We've had a Congress unable to agree on anything so we're stuck under a budget freeze that happened thanks to the 2010 Budget Control Act and its sequester. Soft government spending has actually hurt US GDP and slowed the recovery.
Since we've been keeping interest rates at zero for some time for political purposes, we lack a lot of controls (ie. interest rates adjustments) to smooth out whatever fallout takes place.
The risk is that rates might go up. That isn't the end of the world, but will have a negative impact on stocks. As a citizen, the impact varies based on your position. If you refinanced your house with a 30-year fixed, you're good. If you're on a interest-only ARM, not good.