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@Zaratustra
Interest rate monetary policy increases the value of investments, causes purchasing on credit to become more lucrative, and lowers the carrying cost of existing debt burden. Interest rate policy also inflates asset values and puts money in the hands of the wealthy, focused on incentivizing spending.
Unfortunately, there are limits. One, as we approach near zero-rates it becomes less effective.
And two, the wealthy might not spend the money and instead save or invest, which drives up the value of investments such as real estate.
Quantitative easing (“QE”) monetary policy
QE policy is for central banks to buy bonds and other financial instruments, giving investors cash in return. The Bank of Canada was soinflarge-scale purchases of at least $5 billion per week of Government of Canada bonds.
When the interest rates approach zero, the interest rate monetary policy becomes less effective. QE policy has the same effect at later stages. At some point the price for assets is too high and returns are too low to motivate spending.
Other than interest rate and QE, Central Banks can do little to effectively motivate institutional buyers to spend.
That just leaves “Helicopter money” is the idea to put money in the hands of those who need it most and will spend it.
Hope this helps you understand “why would anyone borrow”. It’s not as simple as you made it seem.
Interest rate monetary policy increases the value of investments, causes purchasing on credit to become more lucrative, and lowers the carrying cost of existing debt burden. Interest rate policy also inflates asset values and puts money in the hands of the wealthy, focused on incentivizing spending.
Unfortunately, there are limits. One, as we approach near zero-rates it becomes less effective.
And two, the wealthy might not spend the money and instead save or invest, which drives up the value of investments such as real estate.
Quantitative easing (“QE”) monetary policy
QE policy is for central banks to buy bonds and other financial instruments, giving investors cash in return. The Bank of Canada was soinflarge-scale purchases of at least $5 billion per week of Government of Canada bonds.
When the interest rates approach zero, the interest rate monetary policy becomes less effective. QE policy has the same effect at later stages. At some point the price for assets is too high and returns are too low to motivate spending.
Other than interest rate and QE, Central Banks can do little to effectively motivate institutional buyers to spend.
That just leaves “Helicopter money” is the idea to put money in the hands of those who need it most and will spend it.
Hope this helps you understand “why would anyone borrow”. It’s not as simple as you made it seem.
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