Are Low Interest Rates Good?

The cost of borrowing money is at a record low. Low interest rates and cheap credit encourage people to spend more, and to save less. Is this good or bad?

Many argue that we need low interest rates to encourage spending. But low interest rates don’t actually encourage people to spend more money. Low interest rates simply encourage people to spend more money now, and less in the future. The opposite is true for high interest rates.

So what interest rate is best overall? Professor Davies says the best interest rate is the one that comes about naturally, without government intervention. Individuals know better than the Federal Reserve how and when to spend their money. Decisions on whether to consume more or save more is best left to individuals, not government officials.

8 Comments

  1. Jonathan Taylor

    Depends on whether Americans choose to take an active role in their government. I think a lot of things we don’t suppose will happen today will be taken for granted at some point in the future, just as people 300 years ago couldn’t have imagined that we’d be living the way we are today.

    We just have to  keep working toward positive progress.

  2. Keith Knight

    Every economic downturn before the Fed’s creation in 1913 is refereed to as a ‘Panic’ (1789, 1819, 1837, 1873, 1893, 1907) because after people panicked the market adjusted.  It wasn’t until  1920 under Warren Harding was there a “Recession” that he refused to intervene in, thus it’s end in 1921.

  3. asexymind

    And, low interest rate now means, not only more spending now, but more spending on less profitable things. When interest rates are high, people are more hesitant to borrow unless it is truly valuable – leads to greater profit. Higher quality experiences, and higher profit business opportunities. If we want, not only more money available in the future, but better/more goods and services, we want the optimal mix – which is the market.

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