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Current problem is that money right now will be evaporating when loans default. The financial system is built on itself so that loans create money. It does no

by tonyhb 7y ago

Current problem is that money right now will be evaporating when loans default. The financial system is built on itself so that loans create money. It does not expect to come to a grinding halt. If it does, loans aren't repaid, and money literally disappears. Deleveraging occurs. Wealth disappears. I think the aim is that we don't lose money from defaults over the short term.

naringas 7y ago
but isn't loans defaulting (risk) the original reason for having interest?
- dillonmckay 7y ago
  Yes.
  - samsonradu 7y ago
    And that’s why it’s so close to zero - because there’s the gov/fed safety net.
resters 7y ago
Issuing loans is risky, and the price of borrowing should reflect actual risk. The US economy is moving to a more and more highly leveraged scenario where all firms avoid worrying about systemic risk because it's profitable to do so since they know they will be bailed out when the inevitable occurs.
TheBobinator 7y ago
If the government wanted to so decree, they could decree banks could not forclose on bankrupt customers and must restructure loans. They've already done that for rent and mortgage agreements in many areas where people are hard hit by this. That would stop the loss of money right there. The market is demanding liquidity to be able to manuver an uncertain future; this has caused an effective collapse of the credit market due to demand. Much like there's no TP on the shelf, there's no credit on the shelf; the fed however can print a lot of money if it wants to which ironically enough, can then be invested to print TP. If everyone has cash in the bank account, they feel secure, and that in of itself will stop the stock market from collapsing further. The way they avoid inflation is by providing loans at a rate under the rate of inflation; free money, but it has to be paid back and over a reasonable term. This will expand the amount of money in the economy for a time. History will remember this as is a perfect storm; the medical industry has been a tremendous burden on government and employers backs in the form of an unscrupulous blackbox of spend. A couple million deaths especially of elderly patients is going to upend the medical industries cash cow and at the same time force a hard look at what the industry is doing to be prepared for pandemics like this one. If you have cash going into this downturn, now's the time to start plotting where you are going to invest it for maximal gains.
- gatleon 7y ago
  > If you have cash going into this downturn, now's the time to start plotting where you are going to invest it for maximal gains If much of this money is effectively going into the stock market - either via credit to public corporations or direct stock purchases by the Fed - is that most likely where maximal gains might occur?
- nocorpwelfare 7y ago
  Not having to pay for the care of some amount of elderly and some amount of people who were in bad health for whatever reason is sadly a positive outcome of this whole mess. The savings to pension plans alone...

by tonyhb 7y ago

naringas 7y ago

but isn't loans defaulting (risk) the original reason for having interest?

dillonmckay 7y ago
Yes.
- samsonradu 7y ago
  And that’s why it’s so close to zero - because there’s the gov/fed safety net.

resters 7y ago

Issuing loans is risky, and the price of borrowing should reflect actual risk. The US economy is moving to a more and more highly leveraged scenario where all firms avoid worrying about systemic risk because it's profitable to do so since they know they will be bailed out when the inevitable occurs.

TheBobinator 7y ago

If the government wanted to so decree, they could decree banks could not forclose on bankrupt customers and must restructure loans. They've already done that for rent and mortgage agreements in many areas where people are hard hit by this. That would stop the loss of money right there. The market is demanding liquidity to be able to manuver an uncertain future; this has caused an effective collapse of the credit market due to demand. Much like there's no TP on the shelf, there's no credit on the shelf; the fed however can print a lot of money if it wants to which ironically enough, can then be invested to print TP. If everyone has cash in the bank account, they feel secure, and that in of itself will stop the stock market from collapsing further. The way they avoid inflation is by providing loans at a rate under the rate of inflation; free money, but it has to be paid back and over a reasonable term. This will expand the amount of money in the economy for a time. History will remember this as is a perfect storm; the medical industry has been a tremendous burden on government and employers backs in the form of an unscrupulous blackbox of spend. A couple million deaths especially of elderly patients is going to upend the medical industries cash cow and at the same time force a hard look at what the industry is doing to be prepared for pandemics like this one. If you have cash going into this downturn, now's the time to start plotting where you are going to invest it for maximal gains.

gatleon 7y ago
> If you have cash going into this downturn, now's the time to start plotting where you are going to invest it for maximal gains If much of this money is effectively going into the stock market - either via credit to public corporations or direct stock purchases by the Fed - is that most likely where maximal gains might occur?
nocorpwelfare 7y ago
Not having to pay for the care of some amount of elderly and some amount of people who were in bad health for whatever reason is sadly a positive outcome of this whole mess. The savings to pension plans alone...