Reserve Bank Options
Most Reserve Banks can control the creation of credit (money) in two ways:
1-By dictating to the banks the liquidity ratios they must maintain and /or by
2-Changing the Interest rate (up or down).
For some reason or other the Reserve Banks hardly ever use option 1 ! It is a pity because this option places the onus on banks to be more discrimate in giving credit to the consumer. This (honest)option has the advantage that it does not create hardship to the consumer already indebted to the banks. Their repayment amount and term does not change.
The second (regretably the preferred option) is to increase the interest rate. Every increase in the interest rate impacts negativily on the consumer. He or she now has to face and find an increased monthly repayment and / or a longer payment term. This is in my opinion not an honest way of dealing with the issue of limiting the formation of "money". The consumer suffers to the benefit of the banks.
Few people know this. A pity!
1-By dictating to the banks the liquidity ratios they must maintain and /or by
2-Changing the Interest rate (up or down).
For some reason or other the Reserve Banks hardly ever use option 1 ! It is a pity because this option places the onus on banks to be more discrimate in giving credit to the consumer. This (honest)option has the advantage that it does not create hardship to the consumer already indebted to the banks. Their repayment amount and term does not change.
The second (regretably the preferred option) is to increase the interest rate. Every increase in the interest rate impacts negativily on the consumer. He or she now has to face and find an increased monthly repayment and / or a longer payment term. This is in my opinion not an honest way of dealing with the issue of limiting the formation of "money". The consumer suffers to the benefit of the banks.
Few people know this. A pity!
posted by Unknown | 6/24/2007 05:51:00 am
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