4 ms·

Doesn't really check out .. You are saying that people will lend without faith that they will get more back than lent? Put yourself in the shoes of someone wh

Doesn't really check out .. You are saying that people will lend without faith that they will get more back than lent? Put yourself in the shoes of someone who has capital - lending is all bad. why go to effort, to risk of losing your money, and opportunity cost of using the money yourself? There's gotta be some incentive for the individual lender if it's actually going to happen at scale in society.

trashtester 4y ago
Lending below the real (inflation adjusted) interest rate is very common, and this is the main case. If there is an average of 2% inflation, a deposit of 0% nominal interest is -2% of real interest rate. But even at 0% nominal interest rate (in periods of low inflation), you see organizatons lend at below 0%, if the risk is zero or close to zero (such as when a bank is lending to the central bank). In fact, throughout history, savings were usually stored in some commodity. The most common ones were grain and gold. Storing grain and gold is not easy, you have to ward off rats, thieves, rot etc. So throughout history, people have been paying granaries, goldsmiths, banks and others a fee for storing their commodities. If a granary were almost full, the owner migth decide to sell some of the grain, and gain profit, instead of storing all the grain under his supervision. This would be relatively safe if the reserve was big enough, and if he would have ways to cover a "granary run".
trashtester 4y ago
Btw, here is the recent interbank rate history (Fibor): https://tradingeconomics.com/germany/interbank-rate https://tradingeconomics.com/germany/interbank-rate This is NOT risk-free lending (though very low risk at such short maturity). Banks can and do go bust. As you can see, the rate has been below -0.5% recently, and is still negative. And there is a LOT of lending going on between banks.

trashtester 4y ago

Lending below the real (inflation adjusted) interest rate is very common, and this is the main case. If there is an average of 2% inflation, a deposit of 0% nominal interest is -2% of real interest rate. But even at 0% nominal interest rate (in periods of low inflation), you see organizatons lend at below 0%, if the risk is zero or close to zero (such as when a bank is lending to the central bank). In fact, throughout history, savings were usually stored in some commodity. The most common ones were grain and gold. Storing grain and gold is not easy, you have to ward off rats, thieves, rot etc. So throughout history, people have been paying granaries, goldsmiths, banks and others a fee for storing their commodities. If a granary were almost full, the owner migth decide to sell some of the grain, and gain profit, instead of storing all the grain under his supervision. This would be relatively safe if the reserve was big enough, and if he would have ways to cover a "granary run".

trashtester 4y ago

Btw, here is the recent interbank rate history (Fibor): https://tradingeconomics.com/germany/interbank-rate https://tradingeconomics.com/germany/interbank-rate This is NOT risk-free lending (though very low risk at such short maturity). Banks can and do go bust. As you can see, the rate has been below -0.5% recently, and is still negative. And there is a LOT of lending going on between banks.