tag:blogger.com,1999:blog-8515247115132134144.post5509676601909824528..comments2024-02-17T12:34:01.400-08:00Comments on Illusion of Prosperity: Who to Really Thank for Today's Stock Market RallyStagflationary Markhttp://www.blogger.com/profile/04568993350246477976noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-8515247115132134144.post-11513888644525423462016-07-04T16:22:32.411-07:002016-07-04T16:22:32.411-07:00Yeah, the global economy is chugging along on risk...Yeah, the global economy is chugging along on riskier and riskier debt. Doesn't inspire much confidence at this end.Stagflationary Markhttps://www.blogger.com/profile/04568993350246477976noreply@blogger.comtag:blogger.com,1999:blog-8515247115132134144.post-12016752455266695732016-07-01T13:29:32.934-07:002016-07-01T13:29:32.934-07:00Most people don't really understand negative n...Most people don't really understand negative nominal interest rates, and yet they are so simple.<br /><br />Nominal interest rates are neither inflation-adjusted nor *risk-adjusted*.<br /><br />Currently inflation is fairly low so it does not make a big difference.<br /><br />But nowadays risk has both a wide range, is often opaque, and the high part of that range covers a lot of big, important borrowers.<br /><br />Therefore a lot of nominal positive interest rates are in effect negative if risk-adjusted.<br /><br />Therefore essentially risk-free borrowing by very low risk, highly transparent entities needs to compete with the *risk-adjusted* rates to entities that are probably high risk, highly opaque.<br /><br />So the mystery is not that borrowers that are acting in effect as custodians receive nominal negative interest rates, which are in effect safe-deposit fees.<br /><br />The real mystery is why the risk-adjusted interest rates to risky or opaque borrowers are in effect negative, while being nominally positive.<br /><br />And the most likely answer to the real mystery is that central banks are eager to lend immense amounts to politically favoured risky (often bankrupt for several years) and opaque (often with fraudulent accounting) borrowers at what effectively are risk-adjusted negative rates.<br /><br />IIRC currently in the USA inter-bank lending market the only lender is the USA central bank, and it is also the case in many EU countries that the Euro central bank is the only lender to banks.<br /><br />If the major central banks are supplying loans in large quantity at negative *risk-adjusted* interest rates, it is hard for other lenders to do otherwise.<br />Blissexnoreply@blogger.com