Lending and psycologys’ effect on inflation

Short term, it is important to look at the public’s willingness to borrow and banks’ willingness to lend money. The public’s willingness to consume is controlled mostly by the cost of borrowing money. At a low interest rate increases in demand and at high interest rates reduce demand. Other factors are the general price level, for example, if the property market is undervalued there will be an increasing demand to borrow money.

Inflation and psycology

Another factor is the psychology, namely that in a recession or stock market downturn the demand to borrow money will decrease, and people tend to save money instead. The opposite is true in good times or when the stock market are rising. In such periods, the desire to spend money increases, because they feel rich, and people may feel that everything can only get better.

Banks’ willingness to lend money

Bankernas vilja, eller kanske snarare ovilja att låna ut pengar, är något som är riktigt aktuellt just nu. Detta är är en otroligt viktig faktorn, eftersom även om räntan är rekordlåg så är bankerna kanske inte villiga att låna ut pengar, då det råder stor osäkerhet om den ekonomiska utvecklingen. Det kan vara vid situationer som en lågkontur då det finns risk att låntagarna inte kan betala tillbaka sina lån i fall de blir arbetslösa, eller vid stor risk för lägre fastighetspriser.

Banks’ willingness, or perhaps unwillingness to lend money, is something that is quite topical at the moment. This is an incredibly important factor, because even if the interest rates is at a record low, banks may not be willing to lend money. Then there is a considerable uncertainty about the economic development. It may be in situations such as a recession, then there is a risk that the borrowers can not repay their loans in case they become unemployed, or at high risk of lower property prices.