Quote:
Originally Posted by Slava
I mean the overnight rate is 3.25%, and in the early 80's it was 17-19? I don't think we're near that? I also think that if we were to see a lot of mortgage defaults and those types of problems, they'd act pretty quickly to cut rates and push money into the system.
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Can you tell me what the average consumer debt load was back then and the split between variable and fixed rate loans? Those would be large factors in terms of differences between the 80's and today. If we are in a scenario where the debt load is higher, and more variable, making them more sensitive to these increases than we are in a scenario where we don't need it to be 17 to 19% to be as impactful.
Its funny, I had a discussion in mid 2020 with some banking buddies. I brought up my concern with inflation and how the QE and injection of money into the system globally was going to trigger some massive inflation. They shrugged it off and said the centrals would deal with it quite quickly... And I think its fair to say they did in relatively short order increase - 3% in the past 9 months. However the system still takes many months and the nature of lagging data makes this is a large ship to turn. This is a situation where impacts can be felt quickly but the medicine takes a while to make its way through the system.