Tuesday, February 25, 2020

Money and interest a pipe dream

Once upon a time:---- It used to be that people saved money because they were rewarded with interest. You surrendered your right to immediate gratification for the same right in the future for a fee, called interest. The person that borrowed the money, was charged interest and that rate was determined by the risk that the borrower might not be able to pay the loan back.

The interest that banks pay has dropped to about 1%, while their loans are being offered at 3.2% interest. Right now, the banks of the world are discussing negative interest rates on savings. Have they gone mad? This is an exercise in absurdity. At this point, free money loans will be free until the banks run out of money to loan.
Interest rates are a function of risk. It appears that there is no market risk. Or there is an unlimited amount of money to loan. And of course, everyone will pay back their loans. This is what an opium smoker would call a pipe dream.

"Once upon a time" was a place in time where things were real. We need to realize that today, things are not real, something is severely wrong. There is no penalty for failure. Go Figure.


dearieme said...

A pandemic would be a particularly brutal way to burst the "everything bubble".

But we shall have no choice in the matter.

Sackerson said...

You're right, of course.

Jim in San Marcos said...

This thing is going to blow over. Politics has blown it out of proportion.

I remember the swine flu that was going to kill millions and nothing happened.

It is the old people that pay, they are the ones that die. Retirees are pissed off at what government inflation has done to their savings. It's very convenient for them to die off before they complain about the ripoff. Of course the kids wouldn't know what they were talking about. They are new to inflation. Their baseline is 2000 mine is 1946. We ain't going to win this one. Score: Old Farts -200 and newborns +200. We might have money, but we don't have the time to spend it politically. The damn rest home wants the money. Go figure.