Interest Rates

The accepted wisdom is that we need a wise banker to set
interest rates. This is nonsense.

In a free market, interest rates are determined by people's view of the future. Businesses need to know what people are thinking about the future, so interest rates are an important economic signal to them.

If people are saving so they can spend in the future, interest rates will fall. This is a signal to business to invest, as it tells them that people will be spending in the future. The lower interest rates also reduces the cost of investing.

If people want to spend now, they will stop saving and interet rates will rise. This is a signal that businesses should be careful about investing, because people will not be purchasing in the future. It also increases the cost of investment.

When the central bank sets interest rates, this important economic signal is deadened. The result is bad business decsions, because businesses do not know what consumers are planning to do in the future.