Thursday, December 3, 2020

About prices in kid’s lemonade stands and interest rates on sovereign debt

If a mother gives her children lemons for them to make lemonade to sell, and then their grandfather comes to their stand and buys lemonade at an extravagant price, would any economist refer to that as the market price of lemonade in lemonade stands? I hope not.

And if regulators allow banks much lower capital requirements when holding Treasuries/Gilts than when holding loans to citizens, and then Fed/BoE with their quantitative easing, QEs, buys up loads of Treasuries/Gilts, are the low interests on these, free market rates?


@PerKurowski