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There is at least one other way to look at it. These loans will primarily, if not exclusively, go to large financial institutions. Due to the wonders of fractio

by 34679 7y ago

There is at least one other way to look at it. These loans will primarily, if not exclusively, go to large financial institutions. Due to the wonders of fractional reserve lending, those institutions will get to loan out several multiples of the original $1.5T. Another way to look at it is that they've probably "printed" closer to $15T.

kamaal 7y ago
How does this work? Like any government can just print their way to prosperity? I mean you just magically put $15T into circulation? Won't this lead to inflation?
- dchyrdvh 7y ago
  As long as other countries use dollars, it's the US that's got 15T worth of goods more. These 15T buy entire tankers of oil, metals, minerals and goods from other countries and this is what matters.
- 34679 7y ago
  Yes it will absolutely lead to inflation. But for the well connected banks who are first to benefit, and coincidentally, I'm sure, the ones who run the Federal Reserve, the money will get to be spent/loaned before it causes much or any inflation. For the rest of us with value stored as US currency, we get fucked.
- imtringued 7y ago
  It depends on what it is used for. If banks have enough deposits to lend out $15T they might not find enough borrowers and therefore only a partial sum will reach the economy. Why do banks have so much trouble getting borrowers if the interest rates are negative? Because banks add additional fees on top. The fee must high enough to cover defaulting loans and the bank's expenses. If you have ever taken a loan from a bank you are aware that you must prove to the bank that you are able to repay the sum. Based on the information they receive they will calculate the default risk and increase the interest rate accordingly. Warning. Extremely simplified for ease of demonstration. If you have a 50% default risk then someone else has to cover your missed payments. For every $10k you want to borrow the bank has to ask for another $10k in additional interest to cover the default risk. If your loan lasts 8 years that means $833 additional interest per year or around 8%. Now, if you are a young poor person with a bad credit score then you might end up paying 5% on top of the actual interest rate. Negative interest: 5% - 0.1% = 4.9%. Positive interest: 5% + 1% = 6%. I'm glossing over compounding interest but the picture is clear. Negative interest rates are not going to meaningfully change the cost of borrowing money for the average person unless they get a mortgage that is backed by the value of the house. Meanwhile for rich people and companies who can get rates as low as 1% lowering the interest rate to -0.1% is almost like a cheat code. At those rates the money might as well be free.

by 34679 7y ago

kamaal 7y ago

How does this work? Like any government can just print their way to prosperity? I mean you just magically put $15T into circulation? Won't this lead to inflation?

dchyrdvh 7y ago
As long as other countries use dollars, it's the US that's got 15T worth of goods more. These 15T buy entire tankers of oil, metals, minerals and goods from other countries and this is what matters.
34679 7y ago
Yes it will absolutely lead to inflation. But for the well connected banks who are first to benefit, and coincidentally, I'm sure, the ones who run the Federal Reserve, the money will get to be spent/loaned before it causes much or any inflation. For the rest of us with value stored as US currency, we get fucked.
imtringued 7y ago
It depends on what it is used for. If banks have enough deposits to lend out $15T they might not find enough borrowers and therefore only a partial sum will reach the economy. Why do banks have so much trouble getting borrowers if the interest rates are negative? Because banks add additional fees on top. The fee must high enough to cover defaulting loans and the bank's expenses. If you have ever taken a loan from a bank you are aware that you must prove to the bank that you are able to repay the sum. Based on the information they receive they will calculate the default risk and increase the interest rate accordingly. Warning. Extremely simplified for ease of demonstration. If you have a 50% default risk then someone else has to cover your missed payments. For every $10k you want to borrow the bank has to ask for another $10k in additional interest to cover the default risk. If your loan lasts 8 years that means $833 additional interest per year or around 8%. Now, if you are a young poor person with a bad credit score then you might end up paying 5% on top of the actual interest rate. Negative interest: 5% - 0.1% = 4.9%. Positive interest: 5% + 1% = 6%. I'm glossing over compounding interest but the picture is clear. Negative interest rates are not going to meaningfully change the cost of borrowing money for the average person unless they get a mortgage that is backed by the value of the house. Meanwhile for rich people and companies who can get rates as low as 1% lowering the interest rate to -0.1% is almost like a cheat code. At those rates the money might as well be free.