Interest rates remain low because we need more borrowers

Interest rates can’t be used as effectively as an economic tool, until there are more borrowers

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According to a new a report by the Fraser Institute, global interest rates are persistently so very low because there’s not enough borrowers in the world.

Michael Walker, chairman of the Fraser Institute Foundation, writes: “Interest rates in the 29 economies that make up 90% of the world’s GDP are low because—and to the extent that—these economies are experiencing a dearth of borrowers and hence a relatively high saver-to-borrower ratio.”

Walker states that in order for central banks to continue to use interest rates as an effective monetary policy tool, the balance between supply and demand—saver and borrower—needs to be maintained. “The fact is that every saver who wants to earn a return needs a debtor as an accomplice,” states Walker in his report, released early this morning. “Because of the anonymity of financial institutions, the connection [between saver and debtor] is not appreciated and indeed most people taking a loan or a mortgage think they are getting it from the bank or credit union. Of course, they are getting it from a saver/depositor who needs the borrower as much as the borrower needs the saver.”

For more on Walker’s analysis, go to the Fraser Institute site.

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