Continues
from the previous post -
Gross Domestic
product (GDP) is a noted count to see if economy is improving or not.
However, I would advise that instead of Gross domestic product we
should have a ratio on gross domestic sells, or say GDS. So far, this
count is not considered and that is the shortcoming. When we notice a
big difference in them due to low sells while production is good the
market begins to suffer. Very often, they presume that since
production happens commensurate sells also must happen but our
experience shows that this is not true. There are companies loaded
with commodity produced and filling their godown. With low rates of
interest on borrowings, this happens. Apparently, it appears that
economy is growing but actually, it is slowing down. Such situations
are responsible for depression.
To recover losses producers are tempted to increase prices of
products that are not selling due to paucity of funds with buyers.
This they do with logic that, there are some buyers, who need it so
eagerly that they will buy it anyways; whatever be the price. This
causes higher prices of products not in demand. This causes inflation
in economy. This explanation shows how low interest rates on deposits
of depositors in banks cause both depression and inflation; two
measure ailments of economy. Understanding this reality, we should
consider GDS in place of GDP while deciding economic condition.
Gambler group will not allow this because if they do; then their
purpose is harmed, rates on deposits will increase to ease the market
and corresponding rise in rate on borrowing. We notice that every
effort is made by this group to avoid making GDS as the corrective
count.
We
have been observing the way many business activities are closing
down. The more reduction in interest rates on deposits, more closers
are observed. The link in these two phenomena seldom noticed by
concerned observers however, if we understand interlink in these two
phenomena we can appreciate the importance of good sizable interest
rate on deposits. The benefit to "Real economic group" by
reduced interest rate on loans is negligible. Benefit by higher
business return becomes important to keep their activity survive. To
get that if there is increase in interest rate on loans they should
appreciate that because over all increase is very small and they will
appreciate the proportional rise in demand. For example, if interest
rate is 15% on loans, the total expenditure on interest annually will
be about 4% and if interest rate reduced to 12% (3% less) over all
reduced expenditure on loans will 3.85%, that means, benefit of 0.15%
only. For such a meager benefit at the cost of loss of business is
definitely not acceptable to business. Very few businesspersons
bother to look to this phenomenon.
Continues
in the next post –
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