08/08/2026
This is a post I made on my personal page. My fascination with understanding economic theory has went hand in hand with my love for collecting and stacking metal over the years. For the record I’m not an economist of financial advisor - just a guy who’s read books and studied as a hobby to try and gain a better understanding of how the world operates. Hope you can take something from it.
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An interest rates sole purpose should be to coordinate production across time, and to ensure that there’s true equilibrium and not a time mismatch between buyers and sellers on the goods they produce and consume.
The best way to achieve this is through rates being set according to actual savings and available resources in the economy.
Remember that production always proceeds consumption. You can’t put the cart before the horse. Well, you can, but you’re not gonna be pleased with the results.
Banks or other enterprises acting as intermediaries who are in need of capital to lend would offer higher yields on savings — incentivizing people to save a portion of their income. The more people saved, and the higher the capital acquired, the more rates would decrease.
Lower rates would serve as a signal to borrow for whatever endeavors a person or business had.
Think of a price as information, and think of an interest rate as something that is time sensitive.
What a lot of people miss, however, is that by choosing to save a portion of your income, and forgoing what your money in a sense entitles you to in the present, you are leaving the resources necessary for producers to produce the things you’re going to be consuming at a later date — which will allow them to bring their projects through to completion — all while maintaining a large degree of affordability throughout the process.
Not only will they have the necessary resources, but the buyer will have the money to purchase the finished goods when the time comes. This is the coordination that is brought about through prices. The price of money or a loan is no different.
However, when prices aren’t a true reflection of actual capital and savings, or inline with the time-preference and inputs given by the millions of individual actors in an economy, and interest rates are artificially suppressed to try and stimulate demand through the injection of newly printed money into the credit markets, the stage is set for a boom and bust (business cycle).
Printing money (inflating the money and credit supply) doesn’t change the amount of available resources when it is done. It merely makes them that much more expensive.
This, of course, sends all the wrong signals out into the economy, and gets people producing and investing in things that the consumer isn’t going to be able to pay for, or projects that aren’t going to bear any fruit in the future.
In other words, it puts a lot of people on an unsustainable trajectory that can cost them everything.
Furthermore, it sets the stage for a lot more unpredictability and uncertainty in the markets and peoples lives.
I’ll add that those who get their hands on newly created money first benefit the most, because they’re able to acquire resources before prices start rising.
Those able to arbitrarily set the rate, and those closely connected to them can not only engineer what seems like a boom but they can manufacture the bust as well by raising rates to try and manage risks that would not have existed had they not artificially lowered them.
They profit on both ends, however. This is how they stay wealthy, while people stay indebted just to try and keep up.
Very dirty and dangerous game. Diabolical imo.
