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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: pater tenebrarum who wrote (82745)3/20/2001 1:52:58 PM
From: Ilaine  Read Replies (2) of 436258
 
Interest rates are a double edged sword. Low interest rates stimulate borrowing, high interest rates stimulate saving. If a bank receives low interest rates from borrowers and pays high interest rates to savers it can go broke unless it has enough borrowers to offset the difference. Otherwise it has to charge borrowers high interest rates and pay savers low interest rates.

In the period 1929-1931, Germany was paying savers 1% more than England in order to increase its gold reserves, and Austria 2% higher than Germany for the same reason. The Federal Reserve was afraid that if it cut interest rates then capital would go to another country. Back then the Federal Reserve was not concerned about the amount of money in circulation, they just cared about maintaining the quality of the reserves.
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