Re:Renting a car will be a pain until at least 2022
by imtringued on Friday September 17, 2021 @06:37PM
(#28571681)
The problem you are talking about is rigidity. Contracts are just promises and predictions. Reality is always different. This is why we let people go bankrupt and write off their debt, to add the necessary amount of flexibility to account for the real world being unpredictable.
Following pieces of paper down to their very letter will make people abandon perfectly fine businesses. A lot of profitable businesses would have to shut down if they had to pay extortionate interest rates.
Positive interest rates simply reward short term thinking. Let's imagine a hypothetical scenario where interest rates are 5% (don't confuse this with the federal funds rate) across the board but it's only the rental car companies that have been hit by covid. A bean counter would see that shutting down the rental car company and using the capital for something else would be a better idea than to keep the rental car company. Next year everyone wants rental cars and the returns increase above 5%.
The point is that we make decisions in the present yet most of the money is going to be earned in the future. What we need is patience and patience means low interest rates, as close to zero as possible and maybe negative if we want 0% inflation.
Following pieces of paper down to their very letter will make people abandon perfectly fine businesses. A lot of profitable businesses would have to shut down if they had to pay extortionate interest rates.
Positive interest rates simply reward short term thinking. Let's imagine a hypothetical scenario where interest rates are 5% (don't confuse this with the federal funds rate) across the board but it's only the rental car companies that have been hit by covid. A bean counter would see that shutting down the rental car company and using the capital for something else would be a better idea than to keep the rental car company. Next year everyone wants rental cars and the returns increase above 5%.
The point is that we make decisions in the present yet most of the money is going to be earned in the future. What we need is patience and patience means low interest rates, as close to zero as possible and maybe negative if we want 0% inflation.