Interest rate

“ Some loans are made apart from the general market, by private agreement between borrower and lender; but in nearly every such case the rate agreed upon is seen to be closely related to that of the general market to which either borrower or lender can resort if he wishes. The greater number of borrowers and lenders of money have a range of choice in their bargaining. The interest rate in modern developed money markets is that rate which brings to equilibrium the demand for money loans and the money capital available within the period. ”

“ He believed that interest rates should be the natural ones determined by market forces rather than by the legislature, especially if there was an attempt to lower interest rates underneath their natural rate, which was not only undesirable but easily circumvented. ”

“ This is a phenomenon always observed in hard times. In good times, on the contrary, when investments are reasonably sure to be profitable, there is naturally an increased demand for money, and so the rate of interest rises. As a matter of fact, however, interest rates, when properly estimated, have been for several years past very much higher than previously—that is, the borrower has, in actual value, paid very much more; so rapid has been the increase of the purchasing power of money, that the six per cent. now paid on a loan will buy more than the ten per cent. ”

“ In the long run a bank maintains its necessary reserve by means of adjusting the interest rate charged for loans. If it has few loans and a reserve large enough to support loans of much greater volume, it will endeavor to extend its loans by lowering the rate of interest. If its loans are large and it fears too great demands on the reserve, it will restrict the loans by a high interest charge. ”

“ The interest rate payable by a borrower on the portion of a guaranteed loan that is sold by a lender to the secondary market under this subtitle may be lower than the interest rate charged on the portion retained by the lender, but shall not exceed the average interest rate charged by the lender on loans made to farm borrowers. ”

“ Right now, with inflation as low as it is, 3.9 percent, there is room for interest rates to come down. Only fear prevents their reduction. A lender, as we know, must charge an interest rate that recovers the depreciated value of the dollars loaned. And that depreciation is, of course, the amount of inflation. Today, interest rates are based on fear--fear that government will resort to measures, as it has in the past, that will send inflation zooming again. ”

“ Through the extreme stringency which existed in the autumn of 1907, the rate ran from 12 to 30 per cent., with the exception, perhaps, of one or two days when practically no money was procurable at any price, when the quotation ran up to 100 or 110 per cent. per annum. It would seem demonstrated by experience that the law of 1882 has been a most potent factor in reducing the interest rate in times of stringency and in rendering it at all times more stable and equable. ”

“ The prime interest rate has been cut more than in half from a killing 21 Ѕ percent to 10 1/2 percent today. Industries like autos, housing, and steel, which had been brought to their knees by those terrible inflation and interest rates, are now regaining strength and calling back workers. ”

“ The business man who values indirect agents above the market rate borrows, and if he miscalculates and fails to make them earn the expected rent, he loses. In this experimental way many other acts are influenced by the prevailing interest rate and in turn affect it, thus aiding to formulate society's estimate of the value of present as compared with future rents. ”

“ Where the interest rate is 10 and 12%, as in Arizona and New Mexico, money, even when brought in, tends to leave in large degree to bring in other forms of capital which the situation calls for more imperatively. ”

“ In case a farmer borrowing $1,000 chooses a 3 per cent, interest rate and the 3 per cent, bond are only selling for 81.00, he gets only $810 and pays $30 per year interest, that is, 3 per cent, on the face of the bonds, and gives his note and mortgage for $1,000. ”

“ If, for instance, men arranging for loans in April, 1862, to be repaid a year later, had known that in the meantime the purchasing power of money would decline 30 per cent., they would have agreed upon a very high rate of interest. Men able to discern the future course of prices would not have lent money at the ordinary rates, and if the rates prevailing in the New York market throughout all 1862 and 1863 were less than 7 per cent., it must have been because the extraordinary rise of prices was not foreseen by borrowers and lenders. ”

“ Inflation, as measured by the Consumer Price Index, has continued at a double-digit rate. Mortgage interest rates have averaged almost 15 percent for these six months, preventing families across America from buying homes. ”

“ Though the rate of interest rises tardily, it rises progressively, and eventually catches up with the rise in prices, owing to the necessity which banks feel of maintaining a reasonable ratio between loans and reserves. ”

“ By tracing the usual course of interest rates and of business conditions throughout one of these cycles, a general idea can be formed of the way in which the joint influences operate to produce price movements. To what extent the course of interest rates is a cause as well as a result of changing business conditions, we shall not attempt here to estimate, but will be content to note carefully the general course which rates for money pursue throughout the cycles. Immediately after a financial crisis, which usually closes an era of great business prosperity, money rates become abnormally easy. ”