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It would discourage people from taking loans, but why would it discourage banks from making them? In fact, higher interest rates would mean that the cost of liq
by CamTin 8y ago
It would discourage people from taking loans, but why would it discourage banks from making them? In fact, higher interest rates would mean that the cost of liquid capital, a bank's main equipment for making money, were suddenly more productive, right?
- archbung 8y agoWouldn't it be pointless to make something that nobody buy?
- r00fus 8y agoClearly high interest rates in the 80s didn't prevent banks from making loans. Lets talk about the inverse of of what you're suggesting - perhaps the lack of ROI on loans is preventing banks from doing what they're supposed to be doing - lending to small businesses.
- JamesBarney 8y agoHow does a low interest rate prevent a bank from making a loan to a small business? A low interest rate is not a federally mandated cap on interest it is an increase in supply which drives down the cost. Which should increase ROI.
- deleted 8y ago[deleted]
- a_d 8y agoWhat you say may be true for almost all the products, unless when the product is 'money' itself. Something worth considering. Easy access to low-cost loans creates the illusion of affordability and exacerbates over-consumption (over-consumption: a general malady afflicting most humans)
- skybrian 8y agoBut the article is arguing the opposite of over-consumption, that there are not enough loans to small business.
- JamesBarney 8y agoBecause the way the fed increases interest rates is by selling a bunch of bonds. Which incentivizes people to moves money from the private economy to the Fed, and which leaves less money available to lend to small businesses. >In fact, higher interest rates would mean that the cost of liquid capital, a bank's main equipment for making money, were suddenly more productive, right? Banks basically just borrow money at x then lend it out at x+y. With y being expenses, defaults, and profits. Now if x grows that doesn't grow y, if anything it shrinks it because there are less individuals looking for a loan at the increases price. Basically if banks were toy makers, the interest rate would.be the price of plastic. Sure if the price of plastic went up toy makers would charge more for toys. But they wouldn't be making more money, if anything they'd me making less.