How does Gov. control the interest rate?

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Roundtable Knight
Roundtable Knight
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Joined: Wed Jul 12, 2006 9:33 pm

How does Gov. control the interest rate?

Post by oem7110 » Wed Mar 10, 2010 7:49 pm

Does anyone have any suggestions on how Gov. controls the interest rate directly or indirectly on the market?

Gov. controls money supply on following approach:
1) issue Bonds on the market
2) Adjust the rate on discount window or any ratio for fund depost for Bank
3) more supply on publishing new money

Does Gov. sell Bond at higher rate on annually return? if they want to rise the interest rate.

Does anyone have any suggestions?
Thanks in advance for any suggestions

Roundtable Knight
Roundtable Knight
Posts: 521
Joined: Mon Apr 30, 2007 3:37 pm

Post by Chelonia » Sun Apr 25, 2010 11:24 am

First of all, "government" does not control the interest. And how is it controlled? As debt multiplies in proportion to capacity to pay, the central banking systems *must* reduce interest rates (otherwise maintaining them as high as can be tolerated), [hopefully] enough that industry can continue to sustain itself, to service its debts, and to borrow further, so much as is necessary to maintain a vital circulation. In the end this fails, because interest on outstanding debt obligations multiplies the sum of debt beyond what the subject industry can tolerate.

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