On Interest Rates

money drainI went to two banks the other day. The interest rates on interest checking, or short-term savings, or money market accounts (without tying money up for a half year or so) were all below 1%. In my lifetime of some 56 years, I cannot recall lower rates. I just refinanced last fall a loan at 4.8%. Two observations. That is quite a spread of profitability for banks; and, two, given inflation at 2-3%, it seems better to borrow than to save. For conservative, thrifty retirees, worried about the mercurial stock market in the post-2008 days and post-real estate crash age, there is essentially little income to be had from their savings. I don’t follow the inter-workings of either the Federal Reserve or the Treasury Department, but as an historian I note only that we are in a cycle in which debt trumps capital, and we are witnessing an enormous redistribution of wealth far beyond the implications of new tax policies. Interest income on savings simply has ceased to exist for millions — leading to profits for banks, and essentially cheap money (the interest rate minus inflation) for debtors. –Victor David Hanson

The question is: How long can a society survive when its cheaper to borrow than to save?

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