Re: Why is a dollar today worth more than a dollar tomorrow?
--- Marko Paunovic [EMAIL PROTECTED] wrote: OK. Then, as long as the expected profit from building a factory is higher than zero, I would not lend the money at zero interest rate. If at a zero rate of interest, the quantity of savings exceeds the quantity of borrowings, savers would earn zero interest. Borrowers would just pay the overhead costs and a risk premium and an inflation premium. You as lender would earn a wage for engaging in the lending business, but the pure interest rate would be zero. The reason the interest rate is positive is that at a zero rate, the quantity of funds demanded for loans exceeds the quantity of loanable funds from savings, so this scarcity drives up the rate just as with other prices. Fred Foldvary = [EMAIL PROTECTED]
Re: Real wages constant since 1964?!
If you measure wages in desk calculators instead of dollars, I'm sure they've gone up substantially! ;-) --Robert And if you measure wages in units of a real-estate price index, they have gone down substantially! Fred Foldvary = [EMAIL PROTECTED]
Re: Why is a dollar today worth more than a dollar tomorrow?
I recall a Japanese econ grad student telling me that in fact real interest rates were negative for some span and people were STILL saving in the late nineties in Japan. He also blamed several bubbles at the time (notably, real estate in Japan) on this. Interesting if true... (Anyone know the details and can they justify the connection without resorting to framing biases of investors?) Following: Fred, I think you answered your own question -- even if many people would save some of their money even if the risk-free interest rate were zero, the quantity of funds demanded by borrowers at this rate would exceed the amount saved. So, a positive interest rate induces some people to defer consumption (save) and others to borrow less, until the market clears. And this would be the case even if there were no risk of nonpayment, and no inflation/deflation. By the way, there have been times and places where the measured real interest rate was essentially zero; I think this happened in Japan in the 1990s. --Robert
