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How does that make the cash rate irrelevant?

If falls in the cash rate have no effect whatever on the rate Joe Public pays on his mortgage or any other loans he takes out, I would say that makes the cash rate "irrelevant", but I guess that's just my opinion.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue May 6th, 2008 at 05:55:21 PM EST
[ Parent ]
The central banks appear to be unable to lower the general level of interest rates by lowering the "cash rate", but if they raised the cash rate presumably that would result in a raise of the general level of interest rates.

This is reminiscent of the way Peak Oil means that OPEC can no longer lower prices by raising production, but they can still raise prices by withdrawing production.

Peak Credit?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Tue May 6th, 2008 at 05:59:55 PM EST
[ Parent ]
Its a floor. If the cash rate is pushed up, tomorrow, the mark-ups will remain about where they are, and the interest rates charged will increase.

On that logic, you are effectively dividing into two possible alternatives:

  • a direct, mechanical, 1-1 relationship
  • no effect

Since the reality is that the level of the floor affects the rates faced by bank customers, but is not the sole determinant, then what you've done is to leave reality in the excluded middle.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue May 6th, 2008 at 06:25:55 PM EST
[ Parent ]


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