Where does the increase in the cost of borrowing go.?

Question

Where does the increase in the cost of borrowing go as a result of the interest rate rise, the lender! or the treasury! Who ends up with monies and what do they do with it? Spend it!

Answer 1

There isn't any 'output' from these increases. The increase is inflation.

('Money' is an imaginary commodity; it is the VALUE OF MONEY that changes with inflation or deflation, NOT the value of goods.)

Profit would be made if the amount of borrowing was constant, and the rate increased. However, a rate increase will reduce the amount of borrowing; this is the specific purpose of 'base rate' changes.

The interbank rate, which is causing a lot of current debate, is adjusted to keep profit constant; it is going up because some 'standard' investments have been discovered to be less profitable than they were thought to be.

Inflation is the result of any upward change in prices. At the moment, people are realising that by making money from property, they are causing property price inflation. If all profit were immediately spent, it would be obvious that price inflation had cancelled it out. But because some money is saved, some is spent, and some is re-invested in other ways, Inflation can sometimes seem to be unrelated to profit.

Markets are very nervous at the moment because the 'idea' of constant profitability is based on an 'active' market, where money is moved rapidly from one kind of investment to another, preserving the illusion of lower inflation than is really present. If a market slows down, there is a chance that the true effect of inflation will 'show up' in others (because they can't move as much money into the 'slow zone').

This will wipe out any profit being calculated for that market, and stop it from trading (unprofitable stuff can't be sold). This affects other markets even more...

Answer 2

The banks usually add an extra 1/4% to 1/2% to any rises for their own profit. The base rate goes to the Government (Treasury). The Government then give themselves a nice fat pay rise and tell us to take a pay cut. They then spend the rest of the extra cash on luxurious holidays. Sorry, I meant trips of National Importance. These trips usually mean they sit in some other leaders office, chatting about their lives whilst drinking coffee (Vodka in Russia LOL) and watching the football on TV. It is hard work being bored for 6 hours and claiming that you have made progress over nothing. The rest of the two weeks holiday, sorry! business of National Importance, is touring and collecting as many freebies as the plane back can carry. As for the Bank's extra income, they also give themselves big pay rises then call the Bailiffs to reposses your home as they have overspent and want your house to raise the shortfall in their profits.

Answer 3

The lenders silly.

Of course it goes to the lenders.

If lending money is more risky, the banks and finance companies increase the interest rates they charge to keep the company profitable while accounting for the defaults.

Answer 4

It goes to savers........the people who lend the money so that others can have mortgages.