The weird consequence of interest rates

posted by Jeff | Sunday, October 4, 2020, 7:57 PM | comments: 0

I think capitalism is generally pretty cool, but I'm not one of these naive ideologues who believe that it can just do its thing without regulation and not cause harm to society. I'm also not someone who believes that there is a hard line between capitalism and socialism, as many choose to believe. (Retiree: "Down with socialism!" Someone else: "No more Medicare for you." Retiree: "Medicare is OK though!") There are so many inequities about the way our society works that I can't simply declare straight up capitalism as a winning faction, but I'd be lying if I said it hasn't worked really, really well for me.

Today, when balancing my savings account (which takes a hot minute since it consists of two deposits and interest), I was sad to see that the interest rate has dropped again, now to 0.399%. When I opened it a few years ago, it was 2%. That's sad, since right now I feel like with so much uncertainty, the only thing appropriate to do is hoard cash if you can afford to. But as interest rates go, there's a flip side.

The rates to borrow money are insanely low as well. The rates are low because The Fed has dropped the rates from the central bank down to insanely low rates, I think 0.25% at the moment. A friend of mine just got a new mortgage with a rate of 2.75%. The rates are so low that I'm considering refinancing my house, because my rate is 3.99%, and I can save about $300 a month with relatively low closing costs. That's insane.

Now let's look at that from a holistic point of view: Our system currently encourages you to borrow money more than save it. Mind you, world events certainly encourage you to save anyway if you can, given all the uncertainty, but that's still kind of messed up.

I just find it odd. It's yet another reason that, as I said, there are no clear lines that embolden the ideologues of fiscal opinion.


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