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The central bank can set their rate at 1000%, but if no one has any potential investments that can yield 1000%+ returns, companies just won't borrow money. In o
by lgieron 10y ago
The central bank can set their rate at 1000%, but if no one has any potential investments that can yield 1000%+ returns, companies just won't borrow money. In other words, no one will be getting 1000% returns on their savings. On the other hand, if you'd be willing to lend your savings at say 5%, you might find action.
- mywittyname 10y agoPeople invest in the CB and earn their guaranteed return. This would drive inflation as bonds mature and soon investment returns would eventually look something like (1000 + $realReturn)%. Maybe not at such an extraordinary rate, but Volcker raised rates to 10-21% in the early 80s and US-based stock returns during that era were substantially higher than at any other time. http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... Referring to that, in the 16 years after the 10 T-Bond return hit a peak of 33% in 1982, stocks yielded over 30% in six separate times. In the next 16 years, from 1999 to 2015, it's done that once, 8 years after a -30% return from the crash of 2008. The S&P also yielded 30+% only twice in the 16 years before 1983. It's not concrete evidence, but it does suggest some relationship between central bank yield and stock returns.