I have a tiny question I hope you gentlemen, and gentlewomen, can answer me;
When the banks have little money to lend people, the intereste rate goes up, but does it go up for people who have ALREADY borrowed money (just like the intereste rate goes up due to inflation), or are new borrowers the only people who have to pay higher intereste? =/ I think the intereste rate goes up for every body (unless you have a fixed rate of course), but I’m not sure.
It depends on the kind of contract you have with someone.
In the free market, you could borrow money and agree to pay back only the amount you borrowed without considering inflation. Or you could agree that the loan should include inflation.
Right now, it seems like we have a mixed system. Some loans go up for inflation, some don’t. You have to read the 20 pages of small print in your loans to figure it out.
There are different contracts. Many home owners, for example, were under variable interest contracts. They were attracted by low initial interest, but the interest rate would slowly go up and then when the financial crisis hit interest rates were jacked up to make up for losses elsewhere.