The Double Whammy Squeezing Borrowers' Purses

It's no secret that consumers and businesses are beginning to feel the pinch of rising interest rates. And what makes the latest increases especially troubling is that for many borrowers, the real cost of credit--adjusted for inflation and the tax deductibility of interest payments--was already much higher than in previous recoveries. According to Zwen A. Goy, an economist at CS First Boston Corp., business loans made at the prime rate over the past year carried a real cost of 1.4%. In past recoveries, however, the real cost of prime rate loans fell to as low as -2.3%.

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