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The base rate is non-zero because capital has non-zero cost. Interest is just the limit of the cost of capital. If you don’t have a fed, or if the fed does noth
by AbrahamParangi 6y ago
The base rate is non-zero because capital has non-zero cost. Interest is just the limit of the cost of capital. If you don’t have a fed, or if the fed does nothing then interest rates will converge on their own to a positive value.
- neilwilson 6y agoBanks have a capital cost. The central bank does not. I was talking about base rates. Banks mark up on base rate to cover the risk to their capital