Negative Real Rates occurs when the rate of interest on a loan is set by a Central Planning Committee rather than the market and it is set below the the real rate of inflation.
The real rate of inflation is what a basket of goods that consumers must use in their daly life like housing, education, energy, food, transportation, communication devices, clothing, etc - how much that all rises on a year over year percentage basis. (in western first world economies the real figure is about 10 perent)
In Free Market Capitalism - which exists nowhere in the world - this interest rate would theoretically be set by private transaction according to the real rate of inflation, the credit worthiness of the borower and other risk factors. (So even Elon Musk would borrow at say 13%)
In Socialism which every country on earth has adopted for the purposes of controlling and centralizing the flow of money through a Central Bank - it is the Central Bank that sets rates - not the free market.
It is also the Central Bank and the Central Government Planning committee that establish the Nonimal Rate of Inflation, which is calculated in a way to keep the number well below the real rate of inflation. (through hedonics, substitution, equivalent rents and other nifty accounting tricks) That way the Central Bank can issue Interest Rates also well below the real rate of inflation.
What happens next is that Large Corporations and Billionaires can receive "loans" from the Government at this extremely low interest rate. Then they use the money in the risk markets, If they gamble in enough size and they lose, the Governement will forgive their losses by bailing them out or sticking the losses on the balance sheet of the Fed. If they win they keep all the winnings.
Good work if you can get it.
However, if you're not say Elon Musk or David Rubinstein, then you have to pay a much more realistic interest rate if you borrrow money. Let's say ten times what Elon Musk pays. Or fifty times if you're a bad credit risk. THen you use the money and if you can not make enough to make a large profit and pay back the huge interest rate then you go broke and get put in jail.
Take buying a house. David Rubinstein gets loans near zero and buys 1000 houses for his firm The Carlyle Group, and then sits on them for the appreciating value of the land and the fact that real inflation will inflate their prices over time) and sells them later, little by little to keep the illusion of scarcity inflating the prices. The loan costs him near nothing so penalty for sitting on them is near nothing.
Now, you want to buy a house. Well, not much on the market since David Rubinstein bought all the houses, But there is a house for sale at a really inflated price and you can get a mortgage for let's say 7 percent - let's say 7 times what David Rubinstein payed for his loan And if you can't make your mortagage over time the bank takes your house away and you go live in the street. And even if you work hard and struggle to make your mortgage there is little left over for anything else. And nothing left over to put into the risk markets which also get inflated ever higher by the same finincial repression.
Since David Rubinstein puts all his profits in the risk markets which get pushed up higher and higher, so even if you have a little left over from paying off your expensive loan it's not enough to buy anything of value in the risk markets.
That is Financial Repression.
That is the basis of all First world "capitalist" economies.
That sounds like a simplification. It is. Only in the senese that David Rubinstein and Elon Musk have a billion other ways to take advantage of access to cheap money that you don't have that are too complex to go into here.
This is why so many people are unhappy. They blame Immigrants. They blame socialists or communists. They blame Blacks or Jews. They blame red states or blue states.
And their unscrupulous venal, grasping, polilticians encourage them in their hatreds.
Because they are too god damned lazy to learn about the real problem, which is Financial Repression,
So the rich get richer and richer and the poor get poorer and poorer.
Until A) Wiser heads get together and rerstructure this failed monetary system or
B) Until the poor are so angry they elect a strong man politician who converts this socialist system into full blown Autocracy and then the strong man and a few of his freinds own everything and nobody else has anything.
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