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10 Comments
The present value of future fixed liabilities rise as the discount rate factor falls. So those future liabilities discounted at 2.5% yesterday are greater today when discounted at 2.25% in NPV terms. Deflation can only exacerbate this trend as wages tend to remain stagnant at best and prohibit consumer goods rising in price, including rents. Falling interest rates in this environment tend to impact depositors more than borrowers since the banks need to shore up previous poor lending decisions. I hope for your sake the full extent of the rate cut is immediately reflected in your outgoings by tomorrow.
What a confusing mixed message on housing prices from Wheeler.....I suppose that comes with the territory of not wanting to fully disclose what your real intentions are! It is like watching two race horses racing around the track in opposite directions with randomly placed hurdles and wondering which one's going to hit the finish line first.
Basically any asset that can create inflation will be manipulated regardless of the fundamentals. A short term solution with long term consequences in a deflationary environment. Would it not be better to man up and admit that we have deflation and at least that might make people invest with a higher degree of scrutiny....surely it is a higher degree of scrutiny that keeps the banking system sound at the end of the day.!?
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