As MMT shows the cost of credit is incorporated into the cost of all goods and services. The higher the interest rate, the higher the price....New Wayland
The Interest/Price Spiral
Neil W
https://new-wayland.com/blog/interest-price-spiral/
As MMT shows the cost of credit is incorporated into the cost of all goods and services. The higher the interest rate, the higher the price....New Wayland
7 comments:
" the cost of credit is incorporated into the cost of all goods and services."
Like I've been saying for a long time.
Financial Assets are opposite…
https://bizfluent.com/info-12036641-relationship-between-interest-rates-npv-irr.html
“ As interest rates rise, discount rates will rise, thereby reducing the NPV of corporate projects.”
For banks the NPV of their regulatory holdings of HQLA available for sale goes down if CB increases the risk free rate…
NPV = R/(1+i)^t
The new interest rate is additive in the denominator… the immediate value of the financial asset goes down with an increase in policy rate…
Price of Real Assets go up due to increase in inventory finance expense…
Black-Scholes option pricing equation also contains the risk free rate… where the option price increases with an increase in the risk free rate… risk free rate is in the numerator…
Which should be enough for the economorons right there as if the right to buy a product INCREASES with an increase in the risk free rate that implies the price of the underlying went UP…. and your option to buy the product has increased in value from when you bought it at the previous lower risk free rate…
Yet how many of these monetarist morons probably rely on the Black-Scholes yet AT THE SAME TIME would say “hey! Fed has to increase rates to fight inflation!” ?
Probably all of them…
Good points!
And how does this all relate to Turkey and our own Grand Poobah?
Post a Comment