Quote:
Originally Posted by Scanner
If Bernacke raised interest rates and all of the sudden you could buy bonds for 8%, to me, there would be money to lend. Yes, at a high interest rate. . .but the liquidity problem would be solved.
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The problem, I think, is that would lead us back to 1980 or so when savings rates were sky high but so was inflation. Higher rates benefit savers, but hurt businesses as it raises the cost of doing business and makes it harder for businesses to expand or for new businesses to start up because they can't borrow needed funds. If folks are stashing their money in 8% bonds, they aren't spending as much which also hurts businesses, so they have to raise their prices. It becomes a vicious cycle.