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But the problem is how much of the demand is artificially proped up by the extremely low borrowing rate? What central banks and feds need to think about is, if
by pxue 5y ago
But the problem is how much of the demand is artificially proped up by the extremely low borrowing rate?
What central banks and feds need to think about is, if they raise rates to combat high inflation, will the higher rates induce a coma in the borrowing market, thus overcorrecting the market into a high supply/low demand situation.
While your argument is logically sound, it's not the whole picture
- nostrademons 5y agoCould be. Or the higher rates might dry up liquidity but not affect prices, as they did in the 81-82 recession. (In other words, nobody buys houses because they can't afford to, but nobody sells houses either because they don't want to take a loss and can just live in them.) Or the market correction makes central banks flinch and they reverse their interest rate hikes, as they did in 2019. Or they hike rates, but not enough to offset inflation, and so real interest rates remain negative and prices keep going up. The whole picture is complex. Anyone who predicts it correctly stands to make a lot of money.
- satellite2 5y ago> they hike rates, but not enough to offset inflation, and so real interest rates remain negative and prices keep going up. So stagflation, with the prices going up but down in real terms. That seems to be the best case scenario, the way to reduce overinflated asset prices without causing a panic. And I'm pretty sure central bankers are currently dreaming of pulling this off, but it seems the market is much more aware of inflation than it was in the 70s, so I'm not sure it's more than a dream.