New bug plagues UK as consumers close eyes and stick fingers in ears

A new sickness is plaguing UK called Denial. Denial has resulted in a national personal debt of almost £1.1 trillion (source Credit Action). Symptoms include:

* Refusal to open bank statements * Lots of scratching of head, saying “how did it get to this?” * Paying by plastic most, or all of time * Sweating at checkout

Denial is now most common illness in UK and it is spreading. Scientists are not sure how illness reached such epidemic proportions, but they are concerned about how disease is mutating.

Take, for example, hideous case of Karyn Bosnak, a self-confessed shopaholic. The American blonde ran up a massive $20,000 of debt. Unable to contemplate thought of actually working to pay it off, Karen set up a website pleading with gullible surfers all over world to send donations. And they did. And Karen has now written lots of books about this venture and no longer needs to borrow such huge amounts of cash. Karen, according to website, lives happily ever after, but still suffers from serious bouts of Denial.

But most people don’t live happily ever after.

Federal Reserve Chairman Alan Greenspan made it clear in 2004 that Federal Reserve would be increasing short-term interest rates at a “measured pace.” With US Dollar at its weakest point in seven years, oil prices unstable and evaluation of other economic indicators, Fed Funds Rate was hiked seven times from 1.0% to 2.75% since June 2004 in an effort to curb inflation. Some economists believe it won’t stop until Fed Fund Rate hits 4.0%.

Consumers with revolving debt accounts tied to prime rate have seen effect through rising interest rate charges, as prime rate always rides 3% above current Fed Funds Rate.

Mortgage interest rates are affected indirectly by these changes. An increase in Fed Funds Rate has an impact on financial markets as a whole, but mortgage rates may go up or down based on perception investors have of current economic statistics and their reaction to Federal Reserve’s after-meeting statements.

In general, when economic data indicates we have a slow-down occurring in our economy, investors tend to sell off stocks and reallocate that money to safe haven of bonds and mortgage-backed securities. The purchase of mortgage-backed securities drives interest rates down. When economic data says there is growth in economy, stock market typically rallies and mortgage-backed securities sell off to fuel that stock market rally. This drives mortgage interest rates up.