interest
rate---On
the one hand, it is the percentage cost for tying up someone else’s cash; on
the other hand it is the percent reward, or incentive,
for taking on the risk to park money
somewhere. There are many, many interest rates in the economy, at least from
the looking glasses at hand. There is much ado among economists, more than
usual anyway, since the evening of September 26, 2008 till now in January of 2015
about what determines “the” interest rate. Professor Harry Hutchinson in his
textbook Money, Banking and the US Economy,
second edition (1971) from the Meredith Corporation says:
“The rate of interest should be taken to mean the rate of return which is paid to a lender who has lent his money for a long period of time by a borrower for whom the chances of default are extremely remote. In other words, the return on a long-term, virtually riskless security would provide a good measure of what we mean by the rate of interest. There is no better example than the interest paid on a long-term US government security.” [1]
Back to January, 2015 and some bonds, US treasuries included, are coming in closer to zero nominal interest rate. Some bonds have actually gone into nominal negative territory, at least according to legend. And yet on the very small scale, some pay day loan interest rates are over one hundred percent, at least according to legend. Perhaps fiscal policy change is in order? See deleveraging.
[1] Please see pages 263, 264 of Money, Banking and the US Economy, second edition, 1971. Many thanks go to Professor Hutchinson and to the Meredith Corporation. Please see the sources below and http://iriewealthonearth.weebly.com/interest-rate.
“The rate of interest should be taken to mean the rate of return which is paid to a lender who has lent his money for a long period of time by a borrower for whom the chances of default are extremely remote. In other words, the return on a long-term, virtually riskless security would provide a good measure of what we mean by the rate of interest. There is no better example than the interest paid on a long-term US government security.” [1]
Back to January, 2015 and some bonds, US treasuries included, are coming in closer to zero nominal interest rate. Some bonds have actually gone into nominal negative territory, at least according to legend. And yet on the very small scale, some pay day loan interest rates are over one hundred percent, at least according to legend. Perhaps fiscal policy change is in order? See deleveraging.
[1] Please see pages 263, 264 of Money, Banking and the US Economy, second edition, 1971. Many thanks go to Professor Hutchinson and to the Meredith Corporation. Please see the sources below and http://iriewealthonearth.weebly.com/interest-rate.