Thursday, February 2, 2017

Gross & Net Interest Cost (a first look)

Gross (red) and Net (blue) Interest Costs
The obvious reply to a complaint about the cost of interest is to point out that interest cost is exactly equal to interest income. The underlying assumption is that we should be happy to receive the interest income, happy enough not to complain about the interest cost.

All well and good. But interest income is not a payment to productive activity. It is a payment to financial activity. Interest cost and interest income move money out of the productive sector and into the financial sector. Financial cost hinders production and consumption. Financial cost hinders supply and demand. Financial cost hinders the economy.

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