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Comment by dragonwriter | Hacker News Reader

> I'm a little surprised that there hasn't been a populist rebellion over interest rates.

Low interest rates are in immediate terms good for net debtors and bad for net creditors. In broad strokes, this makes them good for the poor and bad for the rich (they are usually responses to conditions for which the reverse is true -- or, at least, which are more bad for the poor than the rich, but I'm just considering the interest rates themselves.)

So, a populist rebellion over (low) interest rates makes little sense. (A populist rebellion over the conditions that provoke low interest rates makes sense, and is, in fact, visible on both sides of the partisan political divide, split by what people see as the source of and solution to those conditions.)

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Populist anger is justified… low rates are a key driver of wealth inequality.

1. As interest rates approach zero, asset prices approach infinity (via "Discounted Cash Flow" valuation). The wealthy own most assets.

2. The wealthy tend to have a lot of debt (by choice). Low rates make this cheaper to deal with, and cheaper to obtain for speculation, lifestyle upgrades, etc. Point 1 above provides lots of equity to borrow against.

This is the "wealth effect” which the Federal Reserve and other central banks have been deliberately pursuing. They thought reflating assets would make people feel better and spend more. Unfortunately the wealthy don't need ten haircuts a month or twenty meals a day.

It also turns out that when normal people see houses becoming more expensive, they decide to save more. So the net effect has been negative.

All very predictable but central banking is pre-scientific.

Low interest rates are great for the rich. Wealthy people in general know how to effectively utilize capital to make more money and if that capital is cheaper then all the better for them. I mean cost of capital is one of the chief components of calculating the net present value of a prospective project so the lower the interest rate the more profitable various projects are.

And other rich people are the one's loaning their money out for practically nothing. It's good for active investors (which is why it's done), but it's bad for less risky investments (bonds and other loans).

And those investments carry greater risk, which is a big downside. If, for example, the unicorn bubble is real, all that cheap capital was a curse, not a benefit.

For the last 8 years, it's been impossible to save money without big risk. Interest rates have been below inflation.

Although to be fair, high interest rates are also great for the rich. It's good to be rich.

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