Re:Inequality, Interest Rates, Aging, and the Role of Centra...
by imtringued on Thursday September 02, 2021 @05:58AM
(#28390282)
>First, the "price of money," is not set by markets if by "price of money" we mean interest rates. Interest rates are set by a central bank, which is a monopoly. ... It's determined by monopoly price setting.
The alternative is free banking and it is unlikely to work with a shared currency. Each bank would need to issue its own currency.
> Interest rates do not determine the return on savings.
Technically a high interest rate competes with investments for capital. It means someone is borrowing money at high interest and wants you to make enough room in the economy for that investment. The interest isn't the return, it's the compensation for the inconvenience of delaying spending. If the interest rate is higher than what solvent borrowers would pay then the interest rate on bank accounts directly competes with investments for capital. An investor getting 5% on a bank account will not spend the money on an investment that returns 4%. The absurdity of this choice is that if there are no borrowers at 5% interest no investments will actually be made. The investor is creating a hole in the economy for no reason.
The alternative is free banking and it is unlikely to work with a shared currency. Each bank would need to issue its own currency.
> Interest rates do not determine the return on savings.
Technically a high interest rate competes with investments for capital. It means someone is borrowing money at high interest and wants you to make enough room in the economy for that investment. The interest isn't the return, it's the compensation for the inconvenience of delaying spending. If the interest rate is higher than what solvent borrowers would pay then the interest rate on bank accounts directly competes with investments for capital. An investor getting 5% on a bank account will not spend the money on an investment that returns 4%. The absurdity of this choice is that if there are no borrowers at 5% interest no investments will actually be made. The investor is creating a hole in the economy for no reason.