East Central South Dakota | Sorry triple nickel, I can't buy into that premise. Real interest rates are the nominal interest rate minus inflation. It is an ideological number that is academic by nature. You sign a note for 8% interest and we have 5% inflation tell your banker you are only going to pay him 3%. I am guessing he wants his 8% nominal rate in the contract. The banker doesn't give two jerks what inflation does with his contract loan interest rates. The term/concept of Real Interest is more associated with an investment return than borrowed money. If I receive a return on an investment of 5% and inflation is 8%, I went negative of 3% on my investment. My dollars buy less goods. That discussion has merit. I understand the concept, but unless my banker lets me pay on real interest rates instead of nominal, I can't say debts best friend is "high" inflation. If your banker does let you pay on real interest rates please forward his name to me. My banker seems to be a stickler on paying the nominal rate in the contract, no matter what inflation does.
EDIT to add. I will say, real interest rate is a bigger deal to the lender than the borrower. If the lender needs that 8% yield on the note and inflation is 5% the yield on the investment of borrowing money to us is less. As a borrower we are on the hook for contracted nominal rates regardless. The borrowers obligation and liability is set in stone. By definition--The real interest rate is the rate of interest an investor, saver or lender receives (or expects to receive) after allowing for inflation. It can be described more formally by the Fisher equation, which states that the real interest rate is approximately the nominal interest rate minus the inflation rate. Definition doesn't even mention the borrower.
Edited by white shadow 3/2/2021 22:31
|
Grain sales influenced by inflation and availability of goods.....
