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What do you think were the interest rates on these loans? Historically loan interest rates were extremely high, for multiple reasons: 1) To cover the opportu
by JPKab 14y ago
What do you think were the interest rates on these loans? Historically loan interest rates were extremely high, for multiple reasons:
1) To cover the opportunity cost of holding the money during actual deflation
2) To cover the risk of a possibility of deflation
3) To allow the loaning institution to profit even when deflation occurs
4) The high demand for loans, due to a vastly diminished supply of loans
If you live in a time of high barriers to borrowing money, you will live in a time of vastly decreased social mobility. You know, kind of like the time prior to the last 80 years. That wonderful age you gold-standard lovers wish you lived in.
- codex 14y agoDeflation also requires more collateral, because in case of default, the bank won't be able to sell the collateral for the value it had when the loan was made, which risks insolvency and the loss of depositors' funds.
- msandford 14y agoI'm not opposed to "high" interest rates. It encourages thrift and thrift is what built the modern world. The economy can only grow if production is greater than consumption on a macro level. How do you ensure that production is greater than consumption? You encourage savings via a "high" (some might say reasonable) interest rates.