Wednesday, August 31, 2011

Three Mountains (10) - Low Interest Rates

In the Kingdom of God, high levels of thrift and declining demand for loans will cause interest rates to fall. A sound banking system will eliminate inflation, so savers would not need an inflation premium to compensate them for the rampages of rising prices. As honesty increases, the risk premium will disappear, so interest rates will decline.

As business becomes efficient, the prices of goods and services should gradually fall. Real interest rates will be positive, even if the nominal interest rate is near zero.

The level of interest rates is mostly determined by the value that people place on the future. When people live for the present with no hope for the future, interest rates rise. High interest rates are the sign of a sick culture. On the other hand, if people have confidence in the future, they will not need much compensation for saving, so interest rates will be low. The Kingdom Economy will bring huge confidence in the future, so the time preference premium will be low. A strong future orientation will reduce interest rates.

More on this topic at Interest.

1 comment:

Anonymous said...

Makes sense!