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.
Are Low Interest Rates Good?
Mortgage interest rates are at historically low levels and have been for a long time. Low interest rates are good for borrowers because it means that it costs less for them to borrow. But low interest rates are bad for savers because it means that they earn a lower return on their savings. Similarly, high interest rates are bad for borrowers because it means that they must pay more to borrow money. But, high interest rates are good for savers because it means that they earn more interest on their savings. In 1972, mortgage rates were 7 percent and the average American household’s debt was 76 percent of its income. Mortgage interest rates rose until 1981 and then fell.
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