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No it isn't. If all the debt is paid in full, the only effect this would have is that the income of the economy would be lower. The interests are low now becau
by tehabe 9y ago
No it isn't. If all the debt is paid in full, the only effect this would have is that the income of the economy would be lower.
The interests are low now because many states don't invest as much as they used to do. So the demand for money is low. And when the demand for something is low, the price for it goes down.
- iagooar 9y agoTrying to wrap my head around "the demand for money is low, the price goes down". Genuinely curious.
- lowpro 9y agoIf an entity doesn't see a good way to invest money, they won't borrow money to make money. This is what they mean when 'the demand for money is low'. If the government borrowed money, they would not make as much on that money as the interest payment to who they borrowed from, so they never borrow the money. This has the overall effect of reducing money demand, reducing the premium to get that money (the interest rates continue to drop). Everyone though 0% interest was a hard line and you couldn't go lower, until negative interest rates were introduced to try and reverse this trend, which it largely hasn't.
- thesumofall 9y agoWhat part of it? You are a bank and try to earn as much as possible with the money your customers gave you. However, states, consumers, and businesses don't invest as much as they used to / don't borrow as much money. What do you do as a bank? You lower your interest rates to try to attract at least some customers. Combine that with exceptional supply due to quantitative easing and you have what you have right now
- tehabe 9y agoWhy is that so complicated? If the demand is low but the supply is high, prices usually decrease.
- golergka 9y ago"Money" is cash now. Price is the interest.
- hl5 9y agoLower interest rates cause people to wait for a lower rate, higher rates cause people to take out loans before the rate goes up again. CBs did the worst possible thing with no historic evidence it would work, as usual.
- la_fayette 9y agoi would state it differently. the ecb sets the interest rate low so that borrowing money is cheap and thus more investments will be made and thus economic activity is stimulated.