The Dark Side Six Part 4
Federal Reserve Board, Interest Rates, and Stimulus
Encouraging people to borrow money to buy things helps the short term economy, but harms the long term economy. The degree to which borrowing harms the future economy depends on the interest rate. The higher the interest rate, the more harm is done do future consumption by borrowing to consume today. Let me clarify that. When I talk of consumption I am talking of consuming material things, like cars, houses, and nights out on the town. You could say that when you borrow money you are consuming a loan, and that does show up on the GDP, but the financial industry does not create jobs to the extent that, say, manufacturing or construction does.