Why doesn't the market for capital equalize the discrepancy between supply and demand by adjusting the price (the interest rate)?

a) there's a persistent market distortion because investment profits are undertaxed

b) savers are often not terribly price-sensitive; a lot of people will "save as much as they can" at any interest rate. Also interest can't go below nominal zero (many bank accounts are very close to this).

0Lumifer6yIt does for long-term interest rates. Short-term interest rates are effectively determined by the government.

Open thread, Nov. 17 - Nov. 23, 2014

by MrMind 1 min read17th Nov 2014329 comments


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