I may not be an expert, but......

[rich_jacko]

......how exactly does taking away all profitability from it encourage lending to increase?

Or have I got this wrong, and the real plan is to persuade all those of us with savings to decide it's simply not worth having them any more and blow the whole lot on the high street?

---

In other news, I think *fingers crossed* that I might be over the worst of the lurg now. I still feel crappy; just nowhere near as crappy as I have done since Sunday. I've made it into work every day this week, but today was the first day when I actually knew as soon as I woke up that I was going to manage it.

Thank you to everyone who posted get well comments to my last entry!

Comments

[bonedancer.livejournal.com]

Erm... because a drop in prices should increase demand? If it's cheaper to borrow money, people are more likely to do so and spend it on houses/cars/setting up businesses/big pies or whatever else The Man hopes will get things back to normal.

The thing I'm finding wacky is the idea of negative interest rates - it costs you to keep your money in the bank. It's supposedly a stimulus to spending, but as far as I can see it's a stimulus to catastrophic bank runs, a boost for mattress salespersons and a huge surge in the profitability of burglary.

[rich-jacko.livejournal.com]

Erm... because a drop in prices should increase demand?

Which would work if the problem was no demand. But as far as I understand it, there's plenty of people and businesses who want to borrow. It's just that nobody will lend them anything.

And a drop in prices reduces supply even further.

I can't see interest rates going negative. If they did, surely whatever's left of the financial industry would just disappear?

[vampyrefate.livejournal.com]

You don't get negative rates.

The money supply is worked on the idea that tomorrow's money is cheaper than todays - hence if you want me to give you tomorrow's money, I charge you interest. Deflation is where tomorrow's money is worth more than todays - so you want to hide it under the floorboards and not spend it, as things will be cheaper next week.

We already have this idea in the tech markets - a brand new graphics card costs 500, a few months later its 250.

Of course, if we have general deflation then wages go down too (why should your employer pay you more when everything is getting cheaper?). Japan had it for years, and 'the man' DOES NOT KNOW how to get out of it once you're in it.

[vampyrefate.livejournal.com]

The interest rate cuts are supposed to mean that people with mortgages now have more money in their pockets (and , yes, I do), so they'll run out and spend it (Er... no. I'm using the difference to pay more mortgage off).

However, the banks - in fact all businesses - want liquid assets (cash) at the moment, and do not want to lock their cash down for a few years. So they're not lending it. A clever government would have looked into a loan gurantee scheme, but we have a credit card government...

My company has traditionally used a high interest bank account for our reserves, but the rate of return, which used to be enough to pay a months rent on the office, now covers about a box of tea bags a month.

It feels to me like they sre tyring to nudge us into deflation.