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If interests rates are lower, borrowing increases, including reckless borrowers. So, technically, wouldn't it be more likely to have an even stronger economic

by dataker 11y ago

If interests rates are lower, borrowing increases, including reckless borrowers. So, technically, wouldn't it be more likely to have an even stronger economic crisis?

pjc50 11y ago
There's nowhere for the borrowing left to come from. Due to a combination of income inequality and tightening creditworthiness standards, everyone (business and individual) is either too risky to lend to or doesn't need the money but is instead looking for somewhere to park it.
lucozade 11y ago
It encourages borrowers to borrow possibly recklessly. It doesn't encourage lenders to lend recklessly (they won't make any money for the credit risk). Of course, that won't stop anyone from lending recklessly any more than rationality did last time around.
- jrs235 11y ago
  "It doesn't encourage lenders to lend recklessly (they won't make any money for the credit risk)." As long as lenders are Too Big To Fail and therefore don't take on the full risk of their lending decisions why wouldn't they continue on the private profits/rewards and public losses/risks trail?
meric 11y ago
It will. Banks absorbed creditors' risks and lend them money for mortgages anyways until 2007. The financial crisis caused the government to bail out the banks, whose risk increased because they ate up all the mortgagee's risks. Now the governments are beginning to see problems, and the central banks are absorbing the risks. I think what happens next is the crisis with government bonds spreading from Greece to bigger nations and affecting the U.S., but the crisis will be aborted by central banks, somehow, eating up all the risk. The central banks' risks will in turn eventually be absorbed by currencies, which, when stressed too much, will fall apart and hyperinflate. I think signs of stress include overpriced assets, and volatility of value. A lot of this is my own observations, so take it with a grain of salt.

by dataker 11y ago

If interests rates are lower, borrowing increases, including reckless borrowers. So, technically, wouldn't it be more likely to have an even stronger economic crisis?

pjc50 11y ago

There's nowhere for the borrowing left to come from. Due to a combination of income inequality and tightening creditworthiness standards, everyone (business and individual) is either too risky to lend to or doesn't need the money but is instead looking for somewhere to park it.

lucozade 11y ago

It encourages borrowers to borrow possibly recklessly. It doesn't encourage lenders to lend recklessly (they won't make any money for the credit risk). Of course, that won't stop anyone from lending recklessly any more than rationality did last time around.

jrs235 11y ago
"It doesn't encourage lenders to lend recklessly (they won't make any money for the credit risk)." As long as lenders are Too Big To Fail and therefore don't take on the full risk of their lending decisions why wouldn't they continue on the private profits/rewards and public losses/risks trail?

meric 11y ago

It will. Banks absorbed creditors' risks and lend them money for mortgages anyways until 2007. The financial crisis caused the government to bail out the banks, whose risk increased because they ate up all the mortgagee's risks. Now the governments are beginning to see problems, and the central banks are absorbing the risks. I think what happens next is the crisis with government bonds spreading from Greece to bigger nations and affecting the U.S., but the crisis will be aborted by central banks, somehow, eating up all the risk. The central banks' risks will in turn eventually be absorbed by currencies, which, when stressed too much, will fall apart and hyperinflate. I think signs of stress include overpriced assets, and volatility of value. A lot of this is my own observations, so take it with a grain of salt.