How long can the world’s borrowers hold on as higher interest rates bite? It all comes down to R-Star

In textbook jargon, it all comes down to R-Star (written as R* in economic models) -- the long-term neutral interest rate that keeps inflation steady at central bank’s preferred pace of around 2%.

In the decade or so after the 2008 financial crisis, the neutral rate dropped across developed economies as inflation remained generally subdued even as central banks kept interest rates at historically low levels.

a world saddled with about $300 trillion in debt. 

In contrast with America, where most home borrowers are on 30-year fixed rates, more than 70% of home loans in Australia are tied to variable rates that move largely in line with central bank levels. With household debt averaging about 190% of disposable income...

Bloomberg 18 September 2023


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