eli5: who or what is profiting from the MASSIVE interest rate rises in Australia? Is it the banks holding your mortgage? The Government?!.. basically, who is loving life right now?
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When you borrow money from the bank to buy a house, you have to pay back the money plus extra money called “interest”. This extra money is what makes the bank happy because they make money from it.
When interest rates go up, the bank gets more extra money from people who have borrowed money from them, like people who have a mortgage. So the banks might be happy because they are making more money.
First, when interest rates go up, it can make it more expensive for people to borrow money, which can reduce their spending. When people spend less money, it can slow down the economy. If the economy slows down too much, it can lead to lower tax revenue for the government, which can make it harder for them to fund public services and programs.
However, when interest rates are high, banks and other financial institutions can earn more money from the interest they charge on loans and mortgages. As a result, these institutions may have more money to lend, which can help businesses and individuals invest in projects or assets that could drive economic growth. If the economy grows, the government can benefit from higher tax revenues, which it can then use to fund public services and programs.
Finally, the government may indirectly benefit from higher interest rates because it can use monetary policy to control inflation. When interest rates are low, it can encourage people to borrow and spend more money, which can cause prices to go up. By raising interest rates, the government can encourage people to save more and spend less, which can help keep inflation under control. This can help to ensure that the value of money remains stable, which can benefit the overall economy and the government’s ability to provide public services.
However, higher interest rates can also make it harder for people to pay back their loans or borrow money, which can be bad for some people. So while some people might be happy with higher interest rates, other people might not be.
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