Shane points out something that I forgot to mention: >Since the US Treasury issues "inflation-protected" securities [TIPS, Treasury Inflation-Protected Securities], whose holders are found among the more financially sophisticated investors around, the "real" interest rate at any time can be read from the difference between the interest rates offered on the two types of security. If, say, a ten-year unprotected note, were to offer a rate two percent higher than that for the same-term protected note, the expected ... annual rate of inflation would be two percent over those ten years. Thus the "real" interest rate for any type of [ten year] loan would be that loan's "nominal" rate minus two percent. As simple as that.<
of course, even though it's sophisticated (financial) investors making it, it's still a guess. By its very nature, the future is uncertain. On Tue, Aug 13, 2013 at 3:09 PM, Shane Mage <[email protected]> wrote: > Since the US Treasury issues "inflation-protected" securities, whose > holders are found among the more financially sophisticated investors > around, the "real" interest rate at any time can be read from the > difference between the interest rates offered on the two types of security. > If, say, a ten-year unprotected note, were to offer a rate two percent > higher than that for the same-term protected note, the expected (by people > directly interested in the accuracy of their inflation expectations) annual > rate of inflation would be two percent over those ten years. Thus the > "real" interest rate for any type of loan would be that loan's "nominal" > rate minus two percent. As simple as that. > > Shane Mage > > > This cosmos did none of gods or men make, but it > always was and is and shall be: an everlasting fire, > kindling in measures and going out in measures. > > Herakleitos of Ephesos > > > > > > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > > -- Jim Devine / "Reality is that which, when you stop believing in it, doesn't go away." -- Philip K. Dick
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