Finance, Forex and Investments

What would happen to the economy if interest rates were 0?

McCain said "I'm glad whenever interest rates are lowerd. I wish interest rates were 0" Putting aside politics, looking purely at economics if we lived in a country without any interest rates what would happen?

Public Comments

1. McCain is an idiot. If interest rates were 0, who would lend money. There would be no profit, and people would just hold on to their money.
2. I'd have to say it would collapse.
3. Oh My God if he's President the worth of the US dollar will plummet through the floor
4. Banks would collapse. McCain knows that. It was just his way of telling the people that he knows times are tough.
5. The economy would collapse, why lend money without getting a return?
6. No one would lend money. Businesses would not be able to fund start-up costs. Credit markets would disappear. Banks would fold. And the economy as a whole would crumble. Of course, if we lived in a deflationary economy and prices were dropping at predictable rates, then a zero rate of interest would be acceptable to lenders.
7. -People would not earn money off of their current money (i.e. bank interest), which would not make much difference -Banks would not exist because their main source of income is through interest rates on loans -loaning would be scarce, which means businesses may have more trouble starting up beyond that, im sure the shortage of banks would have a negative impact on the economy.
8. He was exaggerating and being facetious, of course. A zero interest rate would mean no benefit to the lender - so why lend money? The economy would dry up and blow away.
9. I am guessing if you are asking what if the prime rate were zero. Then banks (and very large corporations) could borrow money from the government for nothing. The banks would then lend the money at a very low interest rate, which would prompt tons of borrowing and little saving. This would cause a boom the economy in a very short term, but then INFLATION would skyrocket, and the rates would be increased accordingly. The Prime rate is what the Federal reserve uses to keep inflation down, right now the inflation rate is pretty low, but increasing somewhat rapidly, so rates are low. But since inflation is rising they will most likely raise the rate sometime in the spring. The economy is in such a downturn that the Fed will most likely not raise rates, for fear of making things worse. But many believe that more hiring will occur in the third quarter which means more people will have jobs (meaning more money in the marketplace), and inflation will be more of an issue, which will cause interest rates to rise. I say in the spring because there were so many that were unemployed (myself included) that we racked up a bunch of debt, so the money wont actually enter into the marketplace until about december or so when we start buying stuff again, instead of paying down debt.
10. The end of the global economy as we know it. At first, everyone would become millionaires. You could borrow as much money as you want. It doesn't cost you anything, and when it's time to pay it back, you just borrow more (kind of like what our government does except they actually pay interest with our tax dollars). That would last about a 10 minutes and than hyper-inflation would take over. There would be such an influx of cash into the market that inflation would go through the roof. But no one would care because you could just borrow more interest free money. The value of the dollar would drop like a rock. Commodities, oil, gas, precious metals would soar. By the end of the day, the entire world would be back on the barter system.