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View Full Version : Economics Why do we raise interest rates when the economy is good?


googlegoogle
06-29-2010, 02:07 AM
There are many people taking money out of the economy and stocks and investing in precious metals because of 'fear'. Bank interest rates = joke. (http://www.bankrate.com/funnel/cd-investments/cd-investment-results.aspx?local=false&tab=CD&prods=15&ic_id=CR_searchCDNational_cd_1yrCD_V1) Raising rates would be a good psychological effect by letting people put their money away with interest and get loans going again. Yes?

WoodDraw
06-29-2010, 09:08 PM
Since this was posted at 3 in the morning, I'm going to assume you were drunk. We've all been there...

talastan
06-30-2010, 12:10 PM
Raising Bank interest rates promotes saving not spending. It also discourages lending because of the higher rates of interest.

googlegoogle
06-30-2010, 01:02 PM
These ZERO percent interest rates are just great.

Public wants to put their money in the bank. They can't.

BigChiefFan
06-30-2010, 01:45 PM
They need to raise it at least 1%. The FED has FULL-CONTROL and are doing nothing and yet Bernake is considered Time Magazine's Man of the Year.

petegz28
06-30-2010, 03:39 PM
Rates go up when the economy is doing good to avoid inflation and to keep the economy from overheating. Something Greenspan should have done and didn't.

petegz28
06-30-2010, 03:42 PM
To further add, I think rates need to go up a little. But if you raise interest rates in a sagging economy you choke off spending which is what is needed to get the economy going again. Saving money in a down economy is good for the individual but bad for the economy. So you lower rates to incentivise purhasing and borrwoing when the economy needs a kick.

Nightfyre
06-30-2010, 04:45 PM
Changing interest rates typically have negligible effects on a banks willingness to lend. Its the customers willingness to borrow and capability for repayment that is keeping lending down.

Furthermore, many institutions have no capability to lend due to capital constraints and dealing with the problems they already have.

BigChiefFan
06-30-2010, 05:21 PM
To further add, I think rates need to go up a little. But if you raise interest rates in a sagging economy you choke off spending which is what is needed to get the economy going again. Saving money in a down economy is good for the individual but bad for the economy. So you lower rates to incentivise purhasing and borrwoing when the economy needs a kick.

They need to raise the rate and encourage people to INVEST their money into savings accounts. Incentives are the easiest way to promote that. People that ALLOW banks to use their money to loan out, should be compensated.

petegz28
06-30-2010, 07:11 PM
They need to raise the rate and encourage people to INVEST their money into savings accounts. Incentives are the easiest way to promote that. People that ALLOW banks to use their money to loan out, should be compensated.

That's just it though, if people are saving they aren't spending.

BigChiefFan
06-30-2010, 07:24 PM
That's just it though, if people are saving they aren't spending.They are already not spending, might as well think, long-term and see some benefits once people become more comfortable with loosening the purse strings. Interest on savings, should be a STANDARD practice. It's all FIAT crap, anyway, the FED calls the shots on something that has very little value in the first place. Fiat is mainly faith-based and right now, many have lost faith in the monetary system, as it is currently. The only way I see out of it, is to raise the interest rate to a minimal increase.

petegz28
06-30-2010, 09:02 PM
They are already not spending, might as well think, long-term and see some benefits once people become more comfortable with loosening the purse strings. Interest on savings, should be a STANDARD practice. It's all FIAT crap, anyway, the FED calls the shots on something that has very little value in the first place. Fiat is mainly faith-based and right now, many have lost faith in the monetary system, as it is currently. The only way I see out of it, is to raise the interest rate to a minimal increase.

You raise rates now to a point that cash savings is preferred and you will tank the economy even more.

googlegoogle
06-30-2010, 09:42 PM
You raise rates now to a point that cash savings is preferred and you will tank the economy even more.

We are in a interest rate trap. Those people who are barely able to pay off their mortgage loans will need these rate for how long? That's the problem. There are people that need the higher rates for savings accounts which they live off of. Banks aren't lending neither. It's like we are re-inflating the bubble.

Raising rates may increase confidence?

petegz28
06-30-2010, 09:44 PM
We are in a interest rate trap. Those people who are barely able to pay off their mortgage loans will need these rate for how long? That's the problem. There are people that need the higher rates for savings accounts which they live off of. Banks aren't lending neither. It's like we are re-inflating the bubble.

Raising rates may increase confidence?

I agree. That's why the Fed Gov needs to quit fucking around with band-aids and make meaningul policy change that will stimulate job growth. Then we can absorb the people who fucked themselves by taking out mortgages they never should have falling on their ass and losing their home.

alnorth
06-30-2010, 10:10 PM
That's the problem. There are people that need the higher rates for savings accounts which they live off of.

That is not really a problem. We have no inflation (actually we are a bit scared of deflation, which is far worse than inflation. interest rates cant go anywhere until we are fairly sure that wont happen). In a 0% inflation world, earning 2 or 3 percent above inflation during retirement is great. Savings accounts are for suckers, you can get 1.5% without hardly trying in money markets, so a diverse portfolio shouldn't have a lot of problem getting to 3. (or 5% above inflation for young people who aren't retiring soon)

People have this rate of return number from 5 years stuck in their head, when they really should be looking at beating inflation by a few percent a year. When inflation doesn't exist, then your bogey is a few percent.

talastan
07-01-2010, 09:42 AM
I agree that something needs to be done about the rate. The issue is, as was stated before, keeping that balance that will increase saving and also allow for spending. The problem with raising rates to promote savings completely is that banks spend money paying out the interest to the savers. Meanwhile if the higher rates discourage new loans than the banks aren't making any additional income from interest either. Capital and liquidity then begins to get hurt which will result in a redo of this banking bubble bursting all over again. Different cause but same results.