> Lenders only lend because there’s faith that $1 loaned today becomes more than $1 paid back tomorrow.
This is false, especially for low risk lending. An at least equally important reason for lending, is to delay consumption. Lending teleoports wealth forward in time. Supply and demand of credit will depend if the wealth gets bigger or smaller as a consequence.
Keep in mind that even a bank depost it "lending", and if the deposit is big, you don't have a government guarantee. Also, even with low inflation, the interest rate may very well still be lower than inflation.
If you're a fan of gold, you may want to buy gold. That brings two problems:
1) Where do you store it? If you store it at home, you are inviting burglars. If you store it in a vault, the owner is likely to charge you from 0.5% to 1.0% per year as a storage fee.
2) If you buy the gold when credit is cheap, and interest rates are lower than inflation, the price is high. But if, by the time you want to sell it, the economic downturn is over, and everyone want to borrow money to invest in a business or a new house, the gold price has probably come down already.
So, unless you buy the gold BEFORE the downturn, you may very well lose quite a bit from gold, compared to other assets.
> Growth is not a bad word. It’s absolutely required for positive outcomes.
Growth is good and it makes many things easier. But it IS possible for societies to function well with minimal or even negative growth, at least for a time. In fact, throughout most of history, the average growth per year was pretty low, and might very well be below zero over the lifetime of a given person.
Part of the problem we have no, is that we come to EXPECT such growth, instead of being grateful when we have it.
You are saying that people will lend without faith that they will get more back than lent?
Put yourself in the shoes of someone who has capital - lending is all bad. why go to effort, to risk of losing your money, and opportunity cost of using the money yourself? There's gotta be some incentive for the individual lender if it's actually going to happen at scale in society.
Lending below the real (inflation adjusted) interest rate is very common, and this is the main case. If there is an average of 2% inflation, a deposit of 0% nominal interest is -2% of real interest rate.
But even at 0% nominal interest rate (in periods of low inflation), you see organizatons lend at below 0%, if the risk is zero or close to zero (such as when a bank is lending to the central bank).
In fact, throughout history, savings were usually stored in some commodity. The most common ones were grain and gold. Storing grain and gold is not easy, you have to ward off rats, thieves, rot etc. So throughout history, people have been paying granaries, goldsmiths, banks and others a fee for storing their commodities.
If a granary were almost full, the owner migth decide to sell some of the grain, and gain profit, instead of storing all the grain under his supervision. This would be relatively safe if the reserve was big enough, and if he would have ways to cover a "granary run".
Let me first assume the strictest case, ie that you mean 0% literally, not 0% real rate (adjusted for inflation).
Imagine you are a big institution that holds $10 Billion in "cash", for instance a European bank. The interest offered to them by the ECB at the moment is -0.50%. Most banks prefer to pay that premium for storing "cash" in the ECB account over extracting physical notes. (The notes may not even be available.)
Whether or not private citizens are willing to lend at negative nominal interest rate, doesn't matter so much, as long as companies and institutions are willing.
But in the real world, there is usually some inflation. If the inflation is 5%, cash will lose 5% if its value per year if you store it as paper. Most people will store it in a bank deposit. In today's market, far below 5%, probably closer to 0 than 5. In other words, private persons often lend money to the bank at a negative real interest rate.
Whether your mean nominal or real rates, there are people or organizations out there that are willing to lend below a rate of 0% at this very moment.
This is false, especially for low risk lending. An at least equally important reason for lending, is to delay consumption. Lending teleoports wealth forward in time. Supply and demand of credit will depend if the wealth gets bigger or smaller as a consequence.
Keep in mind that even a bank depost it "lending", and if the deposit is big, you don't have a government guarantee. Also, even with low inflation, the interest rate may very well still be lower than inflation.
If you're a fan of gold, you may want to buy gold. That brings two problems:
1) Where do you store it? If you store it at home, you are inviting burglars. If you store it in a vault, the owner is likely to charge you from 0.5% to 1.0% per year as a storage fee.
2) If you buy the gold when credit is cheap, and interest rates are lower than inflation, the price is high. But if, by the time you want to sell it, the economic downturn is over, and everyone want to borrow money to invest in a business or a new house, the gold price has probably come down already.
So, unless you buy the gold BEFORE the downturn, you may very well lose quite a bit from gold, compared to other assets.
> Growth is not a bad word. It’s absolutely required for positive outcomes.
Growth is good and it makes many things easier. But it IS possible for societies to function well with minimal or even negative growth, at least for a time. In fact, throughout most of history, the average growth per year was pretty low, and might very well be below zero over the lifetime of a given person.
Part of the problem we have no, is that we come to EXPECT such growth, instead of being grateful when we have it.