Banks don't need your deposits to have money to lend. They can lend first, and then acquire the money overnight. When they lend, the deposit that is generated from the lending automatically supplies the money that they need to acquire.
Regardless, interest is the price of money. In the real world, things are priced according to supply and demand. Things that are cheap to produce and are in ample supply don't cost much. Money can be created at virtually no cost by the fed and in unlimited supply, so there is no reason for the price of money to be high - it should be almost free, thus ZIRP (zero interest rate policy) makes a lot of sense and is perfectly normal and sustainable.
You should have made the effort to invest money into something productive, like start a business, or directly fund (taking substantial risk) a business. Even spending your money on consumer goods would have been more productive because spending increased demand, which results in increased production.
A bank can make a loan even if they don't have any excess reserves from deposits. They will acquire the money overnight once the loan is made, and it's pretty much an automatic (highly computerized) system that just happens with little if any human intervention.
You wonder why the interest rate you get at the bank is so low, it's because the bank doesn't have much of a need for your deposits. Your money is not in high demand, nor is the rental of it rare or valuable.
Entrepreneurial endeavor is rare, passive savings is common. Sorry to burst your bubble.
A man without fear is a fool, a man that succumbs to his fear is a coward and a brave man acknowledges fear yet presses on.
The rational answer would appear to be that it should not waste its capital and, therefore, it should plow its investment into the first product to maximize its profits and shareholder welfare. But the empirical evidence across industries is not so clear-cut on account of the factors that I mentioned earlier e.g., uncertainty.
There are numerous cases where the inferior product that was passed up established firms but embraced by newer ones, evolved into a high value product over time with value that matched or exceeded that produced by the high value product(s) embraced by the established companies. Moreover, the newer companies that chose to invest in the development of such products wound up with lower cost structures on account of efficiencies driven by trying to survive while the more established firms had less competitive cost structures that evolved from their paying less attention to costs from their being accustomed to selling high value products. In time, those once inferior products wound up becoming disruptive technologies.
Suddenly what had seemed to be the rational choice to invest in the more profitable product, was actually the suboptimal cost. Instead of promoting shareholder welfare, the seemingly rational choice undermined it in the long-term. Many firms when confronted by such disruptive technologies have declined or disappeared with significant and even total destruction of shareholder wealth.
If I blow the conch and they don't come back; then we've had it. We shan't keep the fire going. We'll be like animals. We'll never be rescued.
Economics One | A blog by John B. Taylor
One year after recovery started (2010) was pathetic compared to prior recoveries - weaker than all the other deep recessions in American history. In 2011 it was so weak so as to be non-existent. By 2012 it was the worst three year recovery in US history. In 2013 was still unusually weak, so weak that Obama's guy, Larry Summers’, defined it as “secular stagnation” .In 2014 it was still a not so great recovery, till late in the year when if FINALLY acted more like a normal recovery. So now, as we approach year 6, we are showing some robust signs in job growth.
Even so, the recovery is not where it should be. Four quarters of growth in 2014 looks to average only 2.2% compared with 4.4% in the corresponding quarters of the 1980s recovery. And as of January 2015 the employment-to-population ratio is still lower than at the start of the recovery.
It's good that we are finally showing some real recovery, but that does not undue the lost output from years of needless stagnation from mutton-headed administration "management".
Last edited by maxparrish; 03-09-15 at 02:28 PM.
Under Obama, the unemployment rate actually recovered faster than under Reagan. Plus, Reagan experienced a double dip, which Obama did not. The recovery under Reagan was the result of huge increases in deficit spending which we haven't had under Obama with the exception of his first couple of years in office (the first of those two years is actually attributable to Bush).
If the current economic expansion continues through the end of the Obama administration, it will be one of the longer economic expansions in history.
Truthfully, the POTUS isn't the only controlling factor of our economy. Giving all the blame or credit to the POTUS is foolish.