October 24, 2016
Sir, Joel Tillinghast, with his letter, and Tony James with his opinion express well serious doubts on the validity of low interests “Low interest rates are leaving pension plans desperately underfunded” and “The Fed can revive the economy with higher rates” October 24.
I would add two comments to theirs. The first is that in my experience little introduces so much pressure to get a project fast to its revenue generating point as high interest rates. In the same manner, low interest rates, can cause project laziness.
The second, much more important, is that too many SMEs and entrepreneurs, and who would love to access those lower rates cannot do so. Since banks are required to hold more capital when lending to SMEs and entrepreneurs, on account of daft regulators thinking these borrowers constitute a risk to the stability of bank systems, they get no bank credit. All worsened by the fact that since banks become less profitable, bank capital itself becomes harder and harder to access.
As to “alternative” financing sources for those “risky” actors desperate for an opportunity to invest, Tillinghast reminds us of “that low interest rates do not mean lower credit card or payday loan rates”.