Long term interest rate set to skyrocket?

Here is an interesting article which discusses the implication of China's USD586b "stimulus plan" on the future interest rate trend. Just when we thought global interest rate is on a downward trend and will continue to stay low for a long period, here is the argument why it should be on an uptrend in the coming future. So will this be bad news for the stock makets but good news to the currency investors?

SeekingAlpha.com: Over the weekend, China announced a USD586billion "stimulus plan" for its slowing economy. China is in a precarious position as the world economy grinds to a halt. Out of its 1.3 billion people, most have not participated in the economic boom the greater country has experienced.

Let me know if this sounds familiar - the rich have gotten richer, while the poor have stayed, well, relatively poor. As a side note, you can see there is nothing unique, wrong, or evil about this phenomenon that has taken place in the US. It's the way of nature - the greater the progress, the more of a gap that develops between the haves and have nots - a topic we could explore at great length in and of itself.

Back to China: the majority of the population still lives in the countryside, and the majority of the population is still poor. And they do not like seeing their fellow countrymen get rich without their fair share (sound familiar again?) To this point, the Chinese government has been able to pacify the masses with sufficient government bread and circuses, as long as the economy continues to hum. But the Chinese state, as currently constituted, may not be able to survive a deep recession, at least without a potential revolution from its countryside.

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Historically, most Chinese uprisings originate from the countryside. Expect the Chinese government to do whatever is necessary to prevent a severe slowdown. They must establish domestic demand for their products and stop relying on exports, and they must do it soon. I think they'll be able to hold things together. Unlike the US, the balance sheet of China (both consumers and the greater government) is quite plush right now. The Chinese save a lot of their money, and they have sufficient capital to get through this - not to mention if/when they really catch on to credit cards, which we saw evidence of earlier this summer.

So what does this all have to do with interest rates in the US? The Chinese government will have less money to stash in US Treasuries - which will put a significant dent in the demand for US Treasuries - which should send rates up, up, and up.

And how about the supply side of the equation? Looks like that's about to skyrocket also. From Bloomberg:

The US government's borrowing needs will almost double to $2 trillion this fiscal year, prompting the Treasury to revive three-year notes and hold more frequent sales of 10- and 30-year debt.

Add these to reasons that I previously outlined, and it appears we have a recipe for skyrocketing long term interest rates.

Note: I am afraid most economies will be able to withstand rising interest rate so soon especially the growth engines are not firing at all cylinders yet. One of the other available option not to raise interest rate would be to continue printing more money AGAIN......but watch out for the creeping inflation! We really have a big problem in hand.

* We have another 1b shares traded today, the 3rd time this month...but this time the market slides by almost 10 points (with 192 gainers, 367 losers ...)

* Bloomberg: China's inflation cooled to 4% in October, the slowest pace in 17 months. (September 4.6%).

* Las Vegas Sands(LVS)'s Singapore project to be delayed to 2010. LVS however managed to get commitment worth USD2.14b and will halt the remaining Macau's project.

* Cheaper "roti" and teh tarik by 10 sen....let's boycott those that does not reduced their price...the price should be reduced futher!