0 % Economy
What is 0 % interest economy
I may not be too much educated to write on this and also this is my naive attempt to explain what is exactly 0% economy is.
Interest rate is the value of current money worth in future. Money just like any other machine depriciate in future. The forefathers specifically provided this attribute to money for some good reason (Which I might discover while writing this essay)
So I was telling you about what is interest rate, it is kind of what current 100 rs note worth after an year. If it is 12% your 100 rs is equivalent to 112 bucks after 1 year. So does it means everyone is getting richer day by day. In my understanding yes and also no. There is another Stan sitting somewhere, called inflation.
Business man and people selling things know that after an year you will have 112 bucks, so they will increase thier prices in order to get some extra cut from your earning. Not only business men but Government does the same. It increase taxes direct or indirect and get its slice of butter.
So what is the use of this interest rate, I think forefather of economics were very clear of one thing, they want to make society much better place to live in. Now if we look closely, if you have not done saving and investment properly , then surely you will suffer from inflation after an year and will look for more lucrative job. But suppose you have intelligently done the saving and invested your money in the best way possible, you will be still having more money than last year even inflation is there and Government is having his slice.
Now we are quite clear with interest rates and how it affects one side of economy. There is other side of economy i.e. those who take loan. They have to payback in accordance to interest rates. I am not touching that aspect right now.
So what 0% rates will affect the former part of economy. It will mean there is no point in saving your money or putting up in the bank (which provide this rate). So definitely you are not going to keep this bank, so where you will keep it. You will do one of the following things :-
1. Give to some one which look promising and give more payback. (Share market)
2. Investing yourself in some kind of business or some profit making things.
So what are you doing effectively, you are pumping your money in the market cycle, which in turn will create more money.
now one question which is always intruguing to me how money multiply when it goes in cycle of market. It can be easily understood by Money Multiplier effect. Which I will touch sometime later.
So what we see is, 0% interest government monetary department wants or urges you do not save your money in bank, go out yourself and put in market. Banks are fragile because of their earlier liabilties and they cant promise you any more. So it is your money and you should take care of yourself. In a way governemnt is trying to cut Banks off from the Money cycle by including 0% interest.
No Rational people will anymore keep money in bank and will definitely keep in some other investment and saving strategy which provide them more returing after an year, because Stan Inflation and government(which should not be increasin taxes but still) waiting for you at the end of the year.
I may not be too much educated to write on this and also this is my naive attempt to explain what is exactly 0% economy is.
Interest rate is the value of current money worth in future. Money just like any other machine depriciate in future. The forefathers specifically provided this attribute to money for some good reason (Which I might discover while writing this essay)
So I was telling you about what is interest rate, it is kind of what current 100 rs note worth after an year. If it is 12% your 100 rs is equivalent to 112 bucks after 1 year. So does it means everyone is getting richer day by day. In my understanding yes and also no. There is another Stan sitting somewhere, called inflation.
Business man and people selling things know that after an year you will have 112 bucks, so they will increase thier prices in order to get some extra cut from your earning. Not only business men but Government does the same. It increase taxes direct or indirect and get its slice of butter.
So what is the use of this interest rate, I think forefather of economics were very clear of one thing, they want to make society much better place to live in. Now if we look closely, if you have not done saving and investment properly , then surely you will suffer from inflation after an year and will look for more lucrative job. But suppose you have intelligently done the saving and invested your money in the best way possible, you will be still having more money than last year even inflation is there and Government is having his slice.
Now we are quite clear with interest rates and how it affects one side of economy. There is other side of economy i.e. those who take loan. They have to payback in accordance to interest rates. I am not touching that aspect right now.
So what 0% rates will affect the former part of economy. It will mean there is no point in saving your money or putting up in the bank (which provide this rate). So definitely you are not going to keep this bank, so where you will keep it. You will do one of the following things :-
1. Give to some one which look promising and give more payback. (Share market)
2. Investing yourself in some kind of business or some profit making things.
So what are you doing effectively, you are pumping your money in the market cycle, which in turn will create more money.
now one question which is always intruguing to me how money multiply when it goes in cycle of market. It can be easily understood by Money Multiplier effect. Which I will touch sometime later.
So what we see is, 0% interest government monetary department wants or urges you do not save your money in bank, go out yourself and put in market. Banks are fragile because of their earlier liabilties and they cant promise you any more. So it is your money and you should take care of yourself. In a way governemnt is trying to cut Banks off from the Money cycle by including 0% interest.
No Rational people will anymore keep money in bank and will definitely keep in some other investment and saving strategy which provide them more returing after an year, because Stan Inflation and government(which should not be increasin taxes but still) waiting for you at the end of the year.
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