Ross

Ben Bernanke’s Initiation: Flashback to 1987

Rather than using interest rates (either nominal or real) it might be more appropriate to look at the total interest cost (in $s) as a percentage of income. In Australia at the moment people are coming to the quick (ok, so not that quickly) realisation that although rates are about 1/3rd of what they were back in the late eighties (6% v 18%, rough numbers) their interest cost as a percentage of income is now double what it was then. Therefore people are now suffering cash-flow problems at these much lower rates. This, to me anyway, is far more meaningful than looking at the rates in isolation.