Originally Posted by
FTG
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I would humbly suggest that you both are right......and wrong.
Step back a bit and try look at the bigger picture. You possibly can't see the trees for the forest :cool:
When you look at the historical stats (as in over the last 50+ years) it quickly becomes apparent that Interest Rates and Asset Inflation don't always trend in unison. Yes, they can correlate for a period, but there are plenty of instances in history where any "expected" correlations are totally disconnected.
Coming back to 1st principles yes, interest rates provide the lender with a return/yield which MAY be compared to the rate of Inflation, but ultimately interest rate yields are really the market pricing its view of risk. Hence why we have been witnessing negative interest rate yields in some countries. The "Lender" is happy to PAY interest because they have the view that is the lowest risk proposition and they will at least get most of their money back!