Interest Rates Will Go Up - Catastrophe Ahead Or Unjustified Pessimism?

The long post-Volcker period of declining yields has finally ended. Volcker established that a central bank, when acting decisively enough, can break inflation. But fighting inflation has eventually taken second place in central banks' priorities to rescuing the economy and the financial sector. Of course, inflation is still currently low but investors are starting to demand a premium for the risk that fiscal and monetary policy will eventually generate higher prices. And, as the Greeks are discovering, rising bond yields add to the problems of a government with a weak economy and huge deficit. Economist

The burgeoning federal debt, which Klein mentioned as a potential catastrophe, would become even more onerous in this sort of environment. We are seeing some of these implications play out today as state and local governments are getting squeezed by the economic recession. For investors, as well, this would also be a momentous change. Abnormal Returns

Fed’s Hoening: Room to Raise Rates Without Hurting Recovery
The Federal Reserve could increase key rates toward 1% from near zero as a ward against inflation and possible bubbles in financial markets without hurting the nascent economic recovery, a Fed official said Wednesday.

The sovereign debt is increasing in the US and Europe. Interest rates going up could make things difficult for governments in order to fund their debt. At the same time it could hurt the weak economies of western countries. How is this going to change investors' prospects?