Not strictly an economic issue, but it has serious implications on the economy as well.
I’m doing a seminar on a topic related to IAS39, and today I read this article:
"Chartered accountants and bank examiners ignore the erosion of capital due to falling
interest rates, most likely with the connivance of governments if not on direct order from
them. So there is no advance warning, and the destruction of capital presents a surprise fait
accompli. When it hits, it is already too late to do anything about it."
When I looked at IAS39 to dis/approve this statement, I got to the conclusion that it’s true, which came as quite a shock to me.
In paragraph 47 of IAS39:
"After initial recognition, an entity shall measure all financial liabilities at
amortised cost using the effective interest method"
with negligible exceptions.
"The amortised cost of a financial asset or financial liability is the amount at which the
financial asset or financial liability is measured at initial recognition minus
principal repayments, plus or minus the cumulative amortisation using the
effective interest method of any difference between that initial amount and the
maturity amount"
"The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts through the expected life of the
financial instrument"
What’s amazing to me is that the “effective interest rate” doesn’t change during the life of the debt!
If I look at issuing debt (say, bonds) as buying money at a certain price, interest%, then any reduction in the relevant interest rate should be regarded as impairment of the asset and written off! (I bought expensive money, which is now cheaper)
If you run some numbers in any financial calculator/Excel sheet you’ll be amazed at the amounts that should be written off due to interest reductions.
Am I delusional??? this seems just too unbelievable to be true.
Thanks for reading 
Gilad