My concern

Discussion in 'Economics' started by morganist, Apr 16, 2011.

  1. I have a concern about the current economic policy. I would like to explain my concern and then receive your imput.

    The low interest rate is needed to prevent an economic slow down. Although the recent high inflation, which I suspect is mainly due to the oil price rise and food and other shortages, would suggest a need for an interest rate rise. Therefore if the interest rate is to remain low, assuming this is the target in the future, then will it be possible to hit that target if the reserves increase?

    The problem as I preceive it is central banks use the reserve to increase or decrease availability of funds to lend. If the reserves increase, the funds which can be lent will decrease, which makes less borrowing possible and in THEORY makes the interest rate higher, due to greater demand. Therefore if the ten of fifteen percent reserve target, which the new banking report states is necessary to prevent further bank runs, is met then the availability of funds to lend out will decrease and the interest rate will rise.

    If the reserves are big enough to meet the banking report reserve targets to prevent bank runs then is it possible to have low interest rates?

    I personally do not think so. It leads to a no win situation, you either accept bank runs and bank collapses or you increase the interest rate, which means economic decline and business failure and reposessions.

    In short the current situation cannot continue. There will either be an unwillingness to accept the new reserve requirements or the interest rate will have to rise.

    What do you think?
  2. Sky-high real estate price and high population are the biggest contributors/problem for highest inflation. Food and oil comes next.
  3. That is more of a domestic concern, whereas food and oil are global. Perhaps you are right. But real estate is about to fall.
  4. I would say high real estate price is a global problem because rich people buy properties in many countries.

    Rich people from all countries buy real estates in USA so big cities properties in USA is sky-high. I think since the emergence of rich Chinese and Indians who buy properties in USA, there is real estate problem in USA.
  5. OK. Perhaps your right. However what about the question. Is it realistic to have low interest rates and hit reserve targets to avoid bank runs?