Gary Stevenson

Poor me.

Now, let's assume that the same house is on the market and it's still able to get something like 50,000 pounds rent.

In this example,

Would I be willing to pay a million pounds for this house?

Well, a million pound is only going to get me ten thousand pounds in a bank account now.

So in order to get fifty thousand pounds, the amount I would have to put in a bank account to get fifty thousand pounds now is going to be five times bigger.

This is equivalent to five million pounds.

So in theory, and again, this is a very simplified example, if interest rates are 5%, then a £50,000 a year rental house should be worth about 1 million.

But if interest rates are 1%, that same £50,000 a year house should be worth about 5 million, which is enormous, five times bigger.

so i think what this shows you is just just basically and again this is a very simplified example this shows you that in theory interest rate reductions especially big interest rate reductions should have in theory the power to push asset prices especially assets that have a return like housing or like profitable stocks up really a lot okay this is very simplified but i'm trying to give you the basic understanding that interest rates in economic theory

really aggressively affect the price of assets because if interest rates fall a lot from 5% to 1% then I can't get any interest on my money anymore so suddenly other assets assets that give like real returns like rental property or like a profitable company sharing a profitable company suddenly they are worth so much more relative to money so this was basically

the theory which explained why is it that in that period after 2008 that the economy was really incredibly weak for well I mean you could argue 18 years because it's still weak now but let's say that the 10 years following 2008 the reason

The reason that was sort of given as to why stock markets did so well, despite the economy being so weak, was very simply interest rates are incredibly low.

So nobody wants to have money in a savings account.

Everybody wants to hold real assets instead because they give you much more return.

Okay, so that's your story, right?

That's your sort of simple story, blah, blah, blah.

This is why.

That's your sort of simple story.

This is why asset prices did well after 2008.