Why are interest rates so low?
brookings.edu
Why are interest rates so low?
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Re: Why are interest rates so low?
#2By Ben S. Bernanke, former Fed Chairman
Re: Why are interest rates so low?
#3Because the economy stopped growing, which means there is little demand for money. If there is a large demand for capital then interest rates will rise. It's ordinary supply and demand only applied to money rather than some good or service.
Re: Why are interest rates so low?
#4Because the economy stopped growing, which means there is little demand for money. If there is a large demand for capital then interest rates will rise. It's ordinary supply and demand only applied to money rather than some good or service.
> there is little demand for money.
Wrong side of the equation. There is an oversupply of money, leading to low interest rates.
Re: Why are interest rates so low?
#5Because the economy stopped growing, which means there is little demand for money. If there is a large demand for capital then interest rates will rise. It's ordinary supply and demand only applied to money rather than some good or service.
> there is little demand for money. Wrong side of the equation. There is an oversupply of money, leading to low interest rates.
I guess it depends on which side you are thinking from in arguments like these. The interest rate a bank will give you depends on how much demand there is for the money that you are about to give that bank. If the bank has no way to make a profit on the money they give you because there is little demand then they will offer you a low interest percentage (or even none or a negative one).
So yes, there is an oversupply, but that's the same as little demand on the other side of the bank, plus or minus some arbitrary skew in time.
The bank simply tries to make money from being in the middle between supplier of capital (you and your savings) and the consumers of capital (the demand side, industry, mortgages and so on).
Re: Why are interest rates so low?
#6Why the obsession of economic growth? In Sweden we currently have negative prime interest rate and people have higher salaries than ever and housing prices are all time high.
This greed doesn't lead to less global warming or happier people. I think politicians and economists should start thinking about what actually makes people happy. Economics is efficient management of resources nothing else. Giving the population ability to stay healthy with affordable health care, moderate taxes and stability should be a main priority.
Re: Why are interest rates so low?
#7Because the economy stopped growing, which means there is little demand for money. If there is a large demand for capital then interest rates will rise. It's ordinary supply and demand only applied to money rather than some good or service.
> there is little demand for money. Wrong side of the equation. There is an oversupply of money, leading to low interest rates.
This is a false understanding of how the supply and demand for money works. For example, news about QE was positively correlated with long term interest rates. The expectation of an increased future money supply tilted the balance towards the demand side in the present.
Money is fundamentally an intertemporal thing, and we've known since the 1930s that the cute little supply-demand time-slice diagrams in textbooks don't work on the money supply.
Here we see the prices of 10-year bonds falling (=> interest rates rising) with each QE cycle: http://www.pragcap.com/wp-content/uploads/2013/11/arp1.png
Re: Why are interest rates so low?
#8Why the obsession of economic growth? In Sweden we currently have negative prime interest rate and people have higher salaries than ever and housing prices are all time high. This greed doesn't lead to less global warming or happier people. I think politicians and economists should start thinking about what actually makes people happy. Economics is efficient management of resources nothing else. Giving the population…
In the US and many other places, economic growth is essentially the retirement plan.
Re: Why are interest rates so low?
#9Earlier quoted context omitted.
> there is little demand for money. Wrong side of the equation. There is an oversupply of money, leading to low interest rates.
I guess it depends on which side you are thinking from in arguments like these. The interest rate a bank will give you depends on how much demand there is for the money that you are about to give that bank. If the bank has no way to make a profit on the money they give you because there is little demand then they will offer you a low interest percentage (or even none or a negative one). So yes, there is an oversupply…
The monetary system hasn't been about 'me and my savings', for at least 3 decades. Reasoning about banks, capital, supply/demand, return on investment, in terms of whether consumers spend their savings or leave it sitting on a bank account, will not make you any wiser about the state of the economy or our monetary system.
Current rates are low because central banks everywhere are basically flooding the world with free money, throwing good money after bad money by monetizing poisonous debt, to prevent the financial system from imploding (which almost happened in 2008). Or at least postpone it for as long as possible. Ben Bernanke will be (almost) the last person on earth to say this out loud, which makes the value of this fluff piece on a site like this pretty dubious. There's a reason why his nickname is 'Helicopter Ben'.
Re: Why are interest rates so low?
#10Why the obsession of economic growth? In Sweden we currently have negative prime interest rate and people have higher salaries than ever and housing prices are all time high. This greed doesn't lead to less global warming or happier people. I think politicians and economists should start thinking about what actually makes people happy. Economics is efficient management of resources nothing else. Giving the population…
economic growth, albeit imperfect, is a measure of things getting better for society. So, we should worry about worldwide economic growth, but not necessarily Swedish economic growth. Another point is, lack of growth is a leading indicator of the situation getting worse in the future, even if it is pretty good now. So, yes, economic growth is an imperfect measure, but we have few if any alternatives to economic growth in terms of assessing how things are going in an objective way