Benefit Of Lower Interest Rates

[stonesfever]

Would lower interest rates on loans and credit put more money in people's pockets and less in the bank's pockets? If so why aren't we legislating low interest rates???

 

[Spriggs05]

Would lower interest rates on loans and credit put more money in people's pockets and less in the bank's pockets? If so why aren't we legislating low interest rates???

Lowering interest rates reduces the incentive to save. Lower interest rates give a smaller return from saving. This lower incentive to save will encourage people to spend rather than to save.
It would also raise house prices making it harder for first time buyers to get their own house.
Lower interest rates may cause inflation to rise, due to the moving of Aggregate Demand to the right (New AD) which causes prices to rise, but also employment and output. Without a shift in Aggregate Supply as well.

 

[CaptainCourtesy]

Moderator's Warning:

No poll. Moved to Economics.

 

[joG]

Would lower interest rates on loans and credit put more money in people's pockets and less in the bank's pockets? If so why aren't we legislating low interest rates???

It certainly reduces the income from money markets and bonds in the retirement funds. That is lousy for present retirees and future retirement funds lack accumulation and will probably be smaller.

 

[joG]

Lowering interest rates reduces the incentive to save. Lower interest rates give a smaller return from saving. This lower incentive to save will encourage people to spend rather than to save.
It would also raise house prices making it harder for first time buyers to get their own house.
Lower interest rates may cause inflation to rise, due to the moving of Aggregate Demand to the right (New AD) which causes prices to rise, but also employment and output. Without a shift in Aggregate Supply as well.

To an extent, of course, present spending is higher and recession can often be less severe.

 

[Spriggs05]

To an extent, of course, present spending is higher and recession can often be less severe.

Obviously, you get relatively cheaper exports and an improved balance of payments. Output is also increased and therefore Employment and Real GDP also.
However stonesfever's point was that lowering rates "put more money in people's pockets and less in the bank's pockets". When in fact it is pretty much the opposite.

 

[joG]

Obviously, you get relatively cheaper exports and an improved balance of payments. Output is also increased and therefore Employment and Real GDP also.
However stonesfever's point was that lowering rates "put more money in people's pockets and less in the bank's pockets". When in fact it is pretty much the opposite.

True. But when people start arguing for the people and against banks, they are usually way off mark to begin with.

 

[Fenton]

Would lower interest rates on loans and
credit put more money in people's pockets and less in the bank's pockets? If so why aren't we legislating low interest rates???

Lol !!

QE anyone ?

 

[TNAR]

Interest rates can be considered as the “price” of money. Prices are natural limiters which help determine where scarce resources will be utilized. Money, with all other goods, is a scarce resource. So if you make money “cheaper” (i.e. lower interest rates) it will be used by more people for less important needs. Businesses will use the cheap money to expand, individuals will use it to make bigger purchases, and the economy will become skewed in the process. Eventually, people realize that the cues they were seeing with cheap money were not realistic and are forced to liquidate excessive investments.