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All the wholesale signals point to a new round of fixed mortgage rate increases soon, even in a real estate market that's failing to fire this spring

Personal Finance / analysis
All the wholesale signals point to a new round of fixed mortgage rate increases soon, even in a real estate market that's failing to fire this spring
rates rising

Wholesale interest rate markets are now pricing in more than a 50 basis points rise at the next Reserve Bank (RBNZ) Official Cash Rate (OCR) review on November 23.

The priced-in amount is not a lot more yet, about 59 basis points as of Tuesday morning. However, just the fact that the upside is being tested is revealing in itself.

Some savvy observers have come to the conclusion that a 75 basis points increase is what is likely to happen on November 23. The OCR's currently at 3.5%. The same reasons these observers have come to that conclusion is resonating more in wholesale markets.

Take a look at the wholesale swap rate charts at the foot of this article. The two year swap rate hit 5% today for the first time since December 2008, a 14 year high. Back then the average bank two year fixed rate was 7.3%. OK, so December 2008 was unusual. The Global Financial Crisis was biting hard, regulators were worried about the fallout, and yields were falling fast. But the two year swap rate was also 5% in ... well, we don't know. It was probably never that low prior to 2008, certainly not going back to 2000 which is when our records start.

And therein lies a pointer. Interest rates in the 2009 to 2021 period are probably the anomaly. We are probably in a period where we are just "reverting to the mean". And the long-run mean (average) is probably well over 5% for wholesale rates.

We will have to get used to 'normal rates' being a lot higher than where they have been. And recognise that this is the level they move around at. No more 2.99% rates, maybe ever.

The CPI data out at 10:45am today (Tuesday) will probably induce a new shift higher in fixed mortgage rates. There has been a background but relentless set of increases recently, all small, and few as of themselves deserving special mention. But they add up.

There was another announced this morning, this one by BNZ, But it was only to take up the space already created by earlier shifts by its main rivals.

The table below sets the base for what is to come.

And you will see there is now only one rate across the whole market that is below 5%, the TSB one year 'special'. Every other rate is above that 5% base. You can't help thinking that it may only be months away when we are having the same conversation about "nothing below 6%". The pricing in this market is moving fast now. Recall it was only a year ago we were reporting rates under 3% for one and two year fixed terms, and 18 months ago main banks were offering 2.29% fixed rates.

One useful way to make sense of the changed home loan rates is to use our full-function mortgage calculator which is also below. (Term deposit rates can be assessed using this calculator).

And if you already have a fixed term mortgage that is not up for renewal at this time, our break fee calculator may help you assess your options. But break fees should be minimal in a rising market.

Here is the updated snapshot of the lowest advertised fixed-term mortgage rates on offer from the key retail banks at the moment.

Fixed, below 80% LVR 6 mths   1 yr   18 mth  2 yrs   3 yrs  4 yrs  5 yrs 
as at October 18, 2022 % % % % % % %
               
ANZ 5.50 5.45 5.65 5.75 5.95 6.85 6.95
ASB 5.50 5.45 5.65 5.75 5.95 6.09 6.09
5.49
+0.14
5.45 5.59
+0.04
5.69
+0.10
5.89
+0.20
5.99
+0.10
5.99
Kiwibank 5.45 5.39   5.65 5.89 5.99 5.99
Westpac 5.45 5.45 5.65 5.75 5.75 5.85 5.85
               
Bank of China    5.25 5.35 5.45 5.65 5.85 5.85
China Construction Bank 5.50 5.65 5.65 5.95 5.95 6.85 6.85
Co-operative Bank [*FHB special] 5.35 5.25* 5.65 5.75 5.95 6.09 6.09
Heartland Bank   5.09   5.45 5.49    
HSBC 5.29 5.39 5.54 5.59 5.79 5.89 5.99
ICBC  5.35 5.25 5.35 5.45 5.69 5.89 5.99
  SBS Bank 5.29 5.29 5.45 5.49 5.75 5.79 5.79
  5.25 4.99 5.45 5.49 5.59 5.75 5.75

Fixed mortgage rates

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Daily swap rates

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Comprehensive Mortgage Calculator

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60 Comments

Remember back to this time last year, when everyone believed that the RBNZ was all powerful, and that it had their backs?

These are the kinds of comments that people were making back then to show that they knew about systemic RBNZ corruption, were leaning into the corruption, and thought that the corruption would work in their favor and make them personally wealthy:

- "The RBNZ/Govt have got our backs. They will never let property prices fall."

- "The RBNZ will never let interest rates rise."

- "If house prices fall, the the RBNZ/Govt will pull some levers to make them rise again."

Average Kiwis LOVED the corruption.   They were all in there like pigs with their snouts in the trough, buying houses like there was no tomorrow, loading up on more and more debt.

Look at the debt to income figures in this article.   https://www.interest.co.nz/property/110261/new-figures-rbnz-show-71-mon…  

These are not the debts of rational investors, taking on rational risk.   These are the debts of irrational investors, who truely believed that the system is corrupt, and will continue to be corrupt, and that the corruption will benefit them if they play the game.

We are all about to find out that:

1) the RBNZ is not all-powerful.   It can do bugger all about global inflation and global rate rises.

2) corruption sucks.   It makes countries poorer.   It makes people poorer.   Relying on corruption is a bad idea in the long run.

 

Now we are left with a huge mess to clean up.   Stupidly high house prices that will only crater from here.  And massive debt levels that will take a generation to pay back.   We will make Japan's Lost Decade look like a fun, prosperous time.

How stupid and shortsighted and corrupt does the LVR removal look now?   And the mortgage holidays for investors, and the incessant pumping of the ponzi by the RBNZ, the banks and the "independent" economists.     Just a big stupid, corrupt cess pit that is about to implode and make NZ dirt poor for a very long time.

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42

Agree - we've been living through a period of insanity where many people have lost their ability to think and act rationally. Both at the individual and collective levels. 

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23

 A lack of financial literacy is a big part of it, sadly.  The emotional pull of owning your own house, particularly when starting a family versus the vagaries of renting, makes for irrational behaviour but that should be countered by a bank credit standards i.e. people will only pay what they can borrow.  That the banks were clearly happy for the financially naive (most of us) to load up debt to the eyeballs and that the RBNZ belatedly and imposed (weak) lending standards upon banks demonstrates the massive disconnect between bank management excessive short term incentives to maintain market share and growth at the expense of longer term bad debts (someone else's problem).  I suspect the banks believe the RBNZ is there to protect the housing market and therefore bank balance sheets. This view is not unreasonable based on recent history but is looking a bit tenuous now.  One thing I do agree with Orr on was jacking up bank capital requirements as they are more likely to be tested.

And let us not ignore (in Auckland at least) the material amount of money from China that has flown into property and property development projects (land acquisition) over the past decade.  Irrational from a purely financial perspective possibly, but not if your main aim is to get money out of China, even losing money on the way is a cost of getting it away from the Middle Kingdom.

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6

Anyone who brought foreign currency into NZ to invest in housing is getting even more of a whacking than locals right now too.

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4

Unfortunately there are still plenty of people around who believe that house prices can't fall, because "the Government won't let that happen". Even in the face of mounting evidence to the contrary, they still continue to believe this. It really is like a religious faith.

Even Bernard Hickey was pushing this line for a while on his blog, before he joined interest.co.nz, saying that Ardern had essentially underwritten the NZ housing market with her comments about "sustainable growth".

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19

The "sustainable growth" comments certainly gave the impression that the government would not let prices fall. Like all politics, not a guarantee but a hint to try to keep the masses happy. However by not not acknowledging how dangerous steep prices are for the stability of the economy those comments seemed likely to fuel the house price further.

For most sensible people, Bernhard Hickey included, those were probably comments demonstrating that the government (or general populace they were trying to appeal to) were being foolish and that the mess would continue to build until it collapsed totally without any government control.

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4

Agree that this belief is still persistant and many are hoping that next year being election year.....Empathy Government is going to go all out with lollies to get vote as nothing matter but power.

What happened and is happening in UK should be a deterret but .................power

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2

Are you oblivious to the fact that through ongoing building code legislation and a lack of competition in materials combined with the rising costs to business (h&s compliance, minimum wage increases, fuel, more holidays etc etc) and huge increases in fuel costs to freight carriers, that the cost of building and maintaining a house has ballooned dramatically.  Or do you just blame property investment for house price increases? How much wealth has been bought to NZ from offshore investment in the housing market? Yes people have enjoyed years of increased wealth if they were shrewd investors. House prices may come down but you shouldn't hold your breath and think its going to be some sort of calamity....

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"Even in the face of mounting evidence to the contrary, they still continue to believe this. It really is like a religious faith."
This is the culture within the government itself. If we had MP's who stood up for what is right in the face of the economic signs, then we might actually have a government worthy of our respect. Instead we have a bunch of clueless empty vessels, throwing their spineless words around hall in parliament, hollow of any real solutions and praising themselves publicly on their lovely paychecks while the country pays for their loose monetary policy. The term sustainable is used in every industry to slap a label on and justify keeping things operating the exact same way as they are.

Santa, for christmas this year I'd like a snap election please? It's the most popular christmas wish in New Zealand
 

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Even Bernard Hickey was pushing this line for a while on his blog, before he joined interest.co.nz, saying that Ardern had essentially underwritten the NZ housing market with her comments about "sustainable growth".

He's been pumping this idea quite recently. 

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I suspect it's cynicism rather than endorsement, though.

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I would like to subscribe to your newsletter.

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6

Newsletter is called "Angry White Man Yells At Clouds".    Published weekly, with a special hard-cover edition published each Christmas.

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6

Doesn't Hosking already own that title...he has a daily outburst.

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6

He's the captain of the blue Team, Fitz is the red team.

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2

Agree.

This was the sentiment - firm belief and though each individual is responsible for falling for it but the real culprits are the people who led them to that path/belief.

- "The RBNZ/Govt have got our backs. They will never let property prices fall."

- "The RBNZ will never let interest rates rise."

- "If house prices fall, the the RBNZ/Govt will pull some levers to make them rise again."

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3

Is/was there that many people subscribing to those views?

Odds are probably on for that last one but only after some destruction. 

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0

Odds are probably on for that last one but only after some destruction. 

A true believer in the magic money mechanism. 

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0

CPI just in at 7.2% - 75 base points an absolute minimum now.

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Absolutely. It was obvious long ago that we were in massive bubble territory but many just turned a blind eye as you say. They say that you know when you are nearing the end of a bubble when people behave in an irrational way, firmly believe that things simply cannot fail/zero risk etc and we saw that in spades.

We will soon see the consequences of that. 

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4

Greed and now Fear is extremely strong with this group Obe-one-konobe ......law of physics applies here as "what goes up, will go down" 

Don't worry all you "The Block" supporters TA (Technical Analysis "gone wrong")  and "The Church of the Poisoned Mind"  will be along shortly to calm your furrowed brows .... 

Sent a text a couple of weeks back to ZB on their late afternoon Saturday property show, with the great oracle a Mr A Church presiding, as esteemed guest and it read    "Can you mention to Ashley regarding cash flow properties, if there is no capital gain, you want at least an 8% gross return ...no available in this market sorry" 

The text was read out on air and host was very interested regarding "the numbers" as he could see my point -  while Ashley mumbled something about "long term" and a "different market" ? ....then quickly segwayed into something else. 

These guys wouldn't tell you the truth if it hit them in the face ! ....imagine if it was a car dealer making false claims about a recently released new model, only to be found out 12 months later that particular car was a pile of crap.... you wouldn't hear the end of it, that car dealer would never be allowed on air again ! BUT Oh yes, of course the media doesn't have shares in John Doe Motors Ltd ..... 

 

 

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6

  We will make Japan's Lost Decade look like a fun, prosperous time.

Japan's bubble peaked with residental land values to GDP at about 3x. At the time, h'hold debt to GDP was approx 70%.

The NZ bubble has residential land values to GDP at approx 5x. H'hold debt to GDP is hovering at 100%.  

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3

But....but...but....

Tony Alexander said mortgage rates had peaked months ago, how could this possibly be?

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14

As did Squirrel Bolton.

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11

There are a lot of commentators who confidently predicted interest rates had peaked, and central banks would be aggressively cutting rates in 2023, with a nice soft landing.  All so they could push the idea of rebound in the housing market.

They are going to look as smart as those who described inflation as "transitory".  We are now staring down the possibility of elevated rates throughout 2023/24, alongside rising unemployment and a slowing economy (stagflation).

 

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6

Property Brokers claimed the market "Bottomed out in May" but that did not happen.

As The Prophet would always say - What the Vested Interest say - Believe the Opposite !

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9

Great commentary David, always appreciate the context and insight you give. Makes it much easier to put things in perspective rather than just posting the raw numbers.

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5

Great opportunity for the real savvy investors out there.

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1

 opportunities are approaching for the patient investor,we arent there yet.

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3

The number of "Toys" on Trade-Me are increasing rapidly, plenty of people can see the s**t storm on the horizon and are trying to liquidate early.

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5

The only thing in RE land that's "booming", is listing numbers. With nowhere to go, gravity is the winner. Confronted with higher mortgage rates, FHB qualify for smaller loans and face more stringent stress tests scenarios by their banks. 

House prices still appear overpriced and out of reach for many with new money. There is simply no case for a plateau in the near future.

Guided by short sighted dreams, many dived in yesturday grinning from ear to ear😊. These same folk are now waking to the possibility of negative equity 😭 As prices continue downward, this group will only grow in numbers and quite rapidly. Its a growing snowball. 

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9

Listing numbers are not booming. Have been searching "Auckland region...all listings" weekly for 8 weeks.it is around 12200 +/- 200 for 2 months. I suspect lots of withdrawn > rented in that volume,or simply withdrawn. Weekly sales volumes are low.

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Involuntary Landlords = additional future overhang for an already ailing market. 

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7

Ideally we can take the opportunity afforded to reorient the economy around rewarding productive work rather than speculation on land.

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12

Interest rates in the 2009 to 2021 period are probably the anomaly. We are probably in a period where we are just "reverting to the mean". And the long-run mean (average) is probably well over 5% for wholesale rates.

Exactly right. Whoever thinks that rates will in the future return to the ultra-loose settings of the last few years are indulging in delusional wishful thinking. 

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5

The problem is total mortgage borrowing has gone from 192B in Sep 2014 to 334B now. Fueled by constantly falling interest rates and constantly rising property prices. Can all he debt be serviced at +6%?

Adrian Orr is up for reappointment in March 2023. Election September 2023? Do Labor want to win?

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2

I'm expecting Orr to walk away in March 2023, followed by JA a few months later.

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2

You would of hoped that some people would of used these low rates to acutally pay a decent amount off the mortgage which would of relieved the pressure when they moved to higher rates. But suspect some would of brought a property far out of the normal reach and upgraded the car at the same time. Again though if they stress tested at 7% then rates still not there yet, unemployment is low, so not sure why such a panic unless some were looking for capital gains.

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36% of NZ property is owned by people who own 3 or more properties. 12% of NZ property is owned by Companies that own 4 or more properties.

That is 48% combined. They were all highly weighted towards capital gain in their investment decisions.

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6

When this debt ponzi collapses it will create a hole big enough to be visible from space.

My biggest concern is that the National Party will open up foreign investment channels again, and sell off our houses at cents to the dollar.

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9

My biggest concern is that the National Party will sell New Zealand out from under younger generations to enrich themselves and their mates.

Fixed that for ya.

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4

John Key's son + the Chow Brothers.

They are not just playing around at property development because they like hanging out with each other.

There will be some long term... political shenanigans... behind the scenes deals with foreign interests... to sell Kiwi kid's inheritance to foreigners.     Guaranteed.

Whatever they have got cooking will make John Keys selling of a tennis court for a few million bucks look like child's play.

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6

The younger generations have no assets to sell, it is all too expensive for them in relative terms

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0

Yes, but they're needed as a servant class for the landed gentry. "You will own nothing and be happy."

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Ehem, they were assuredly not buying and selling for capital gains, one will have you know!

(At least, that's what the taxman is told.)

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3

".....real estate market that's failing to fire this spring"

This is to say that so called wait for Spring to come to lift the sentiment of housing market  is OVER.

Now what is the next wait for....Summer........Autumn.....or may be next Spring.

Wait and Watch. Be Postive.

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2

WOWZER - super strong inflation reading!

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3

And there's a fair chance that next time...it will be even higher.

(Supermarket goods sources from flood ravaged Australia, etc.)

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A sign of things to come?

I just took a car in for a WOF. It was $55 last time. Today? $70, and... I had to pay, upfront, even though I'm a long-standing customer. "Why is that?" I asked out of curiosity, "It saves an argument when customer who don't know it will cost $70 when they come to collect their car".

Next up? Probably paying for your meal orders at sit-down restaurant before the food arrives.

It's getting tight out there.

 

 

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6

$78 down here in Tauranga now but everyone is loaded down here so not a problem LOL. Do what I do get a WOF just before the REGO is due and the following year you can get the new REGO without a WOF. Getting a WOF every 2 years now its to expensive. There must be plenty of people using the REGO on hold function now and still driving the car anyway. There are places down here you can drive and there is no way in hell the car has a WOF or REGO.

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1

Do you have vehicle insurance? It may not be much use if WOF isn't current...

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..thats a fallacy - insurance need to show damage due to serios fault from lack of maintenance.

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You could take a leaf out of Central Otago's books:

https://www.stuff.co.nz/motoring/5007683/Cars-registered-as-ambulances-…
 

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0

"We will have to get used to 'normal rates' being a lot higher than where they have been. And recognise that this is the level they move around at. No more 2.99% rates, maybe (o)ver."

Well interest rates this low were never normal.  Prior to the GFC 4-6% was the normal range.  Prior to that 5-10%...

https://tradingeconomics.com/new-zealand/interest-rate

Trouble is that we have gotten used to a very abnormal situation and politicians have been very willing to push this to make us feel rich and stoke a ponzie economy. 

Just remember that the long term normal house price to income ratio is about 3.5 to 4.

Just watch them do every thing that they can to stoke it up again.  Especially National.

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1

Especially National.

Who is presiding over the current mess again? Who watched RBNZ tank the OCR in response to Covid and uncork investor LVRs? Who has let the ongoing failures of the Governor of RBNZ go without consequences? 

It's not National. Try changing the record once in a while and you might get somewhere close to basic accountability. 

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2

I think it's completely fair to look at National. Labour has implemented policies to address some of the housing affordability issues that are helping. 

National did jack shit and is proposing reversing these policies. 

Until National do a Truss and U-turn o their current plans,  it is completely fair to say they are worse than Labour on addressing the housing crisis.

 

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5

Really?

Reintroduce interest tax deductability on property loans

Open the immigration floodgates

Lower top tax rate

........  that they have admitted so far.

But to be fair, Labor are only marginally better and far worse in a whole lot of totally crazy and incompetent ways.

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1

At any rate, we have a mmp system in NZ so don't really have to vote for either party tbh.

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0

I'M HERE FOR THE SPRING UPSWING WHERE YA'LL UPSWINGER'S AT???!!

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3

Seems the difference is, while an individual will cut back on spending when costs increase, a business just ups their prices to maintain their profit margins for the offshore shareholders to feel good about. Increasing interest rates may have been a historical lever to reduce inflation, that was before we became a wholly debt-driven society. No-one scrapes together cash to start a business any more. They just spin some tale that looks good to the bank for a loan, or blows smoke at angel investors/incubators/first-round-funders to get a chunk of seed money. Yes, there will be exceptions, but when did hard-working self-financed entrepreneurs stop being the norm? Probably around the time banks started closing branches and outsourcing their customer support to a call centre in Manila.

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1