Article Image
IPFS News Link • Federal Reserve

Artificially Low Interest Rates... So What?

•, by Tyler Durden

But what difference does it make? Why do artificially low interest rates matter? Peter Schiff explains in this clip from his podcast.

In the first place, artificially low interest rates screw up the way the economy allocates resources and production.

The interest rate is the price of money. Prices send signals in an economy. Think of them as street signs. In a free economy, low interest rates would come about through an abundance of savings.

And if you have a lot of savings, what does that mean?

That means that people are not consuming today. Their time preference for consumption is in the future. And so the signal that sends to the economy is, hey, you don't need to produce a lot of stuff for today because Americans are saving. They're not spending a lot of money. So, you can invest in these long-term projects that aren't going to pay off for years and years and years.