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Imagine a bond pays out $10,000 in 30 years. Now if the interest rate is 0 that bond is worth $10,000. But if the interest rate is 10% then that bond is worth
by JamesBarney 8y ago
Imagine a bond pays out $10,000 in 30 years. Now if the interest rate is 0 that bond is worth $10,000. But if the interest rate is 10% then that bond is worth $573.
So if the interest rate goes from 10% -> 0 we would have 1700% inflation. Which is crazy especially if all other goods and services in the economy remain unchanged.
- repolfx 8y agoWhy would that be crazy? Isn't that a circular definition of crazyness? Inflation is whatever statisticians say it is - if inflation stats were very different to how they are now, why would that would be crazy? Maybe it's crazy that we constantly read about asset bubbles yet inflation stays flat? The intuitive definition would imply inflation should swing up and down wildly given the huge size of the bubbles in question. In reply to your second post, which I think is essentially the same as this one, it makes no sense to say it'd give "a false impression inflation is happening". Inflation is whatever set of prices we want to include. If we arbitrarily exclude some because we think inflation stats should look a certain way, that's the tail wagging the dog - this data exists to inform decision making, not tell us what we want to see.