Central bank money made available to banks at a low interest rate by the central bank as part of its monetary policy. As a rule, this is linked to the expectation that banks will be more willing to lend to their customers. – However, if the inducement to invest among companies and the marginal propensity to consume among private households is minimal, the cheap money will be invested in higher-yielding assets abroad. – On the other hand, flourishing companies will replace expensive labor with capital that has now become cheaper, leading to unemployment especially in the low-wage sectors of an economy. – Finally, financial history clearly teaches that cheap money sooner or later leads to speculative bubbles and ultimately to inflation. – It is also well-founded that cheap money will not solve the structural deficits of an economy, nor will it solve a country’s competitiveness deficit. – See building society contract, oversaved, carry trades, three-year tender, financial investment, money, cheap, money market operations, money oversupply, crisis, central bank-induced, low interest rate policy, zero interest rate, quantitative easing, yield chasing, stealth policy, interest rate allocation function, interest rate incentive, interest rate differential, interest rate, kept low.
Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent!
University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/