(7f) Debt laden companies and dangers to the global economy

I've mentioned it before: interest rates should not be too low. Indeed, people who save should earn something that they can use to spend in the economy.

Similarly and as mentioned in this article, borrowing should not be too cheap and thus easy to avoid that more risks are taken by borrowing too much as that can destabilise the economy. Indeed, companies need to sell and according this they can invest more although that doesn't mean they can never borrow to expand, but only when needed and not only because interests are low so companies expand too quickly and not according the need.

And thus, as companies seem to borrow too much while customers have almost no return on savings so they spend less (although many businesspeople and economists think this is good for the economy as they think it will force people into buying shares that at this moment still give larger returns than saving accounts), predictions are that companies may feel it very severely when a new, even moderate crisis may hit. An example seems to be Thomas Cook that seemed to have taken too much risks, i.e. too much borrowing to grow too fast while in the end debts need to be repaid, even when the economy is less strong or even declines. Indeed, it is easy for managers to loan money to expand what is not their company to show the company grows.

But, because interests are too low on saving accounts and in case companies and people want to buy something more expensive, they either have to sell shares or borrow so debts of society, companies and individuals, even further increase while too much credit and debts (including mortgage debts) were the engine of the global financial crisis in 2007-2008 whereby people sold houses and shares in order to repay debts so the house and stock markets fell.

Indeed, not only companies have too much debts when they borrow too much money, the same applies to individuals whereby mortgage companies continue to stimulate people to borrow more as interests are very low. The result: house prices continue to rise as people can borrow more with lower interests to repay so in the end they repay the same or even more than previous generations while many, and certainly the generation that becomes adult, earn too little compared with house prices so they have to borrow more or together with others while later they must repay over a very long time; in addition, these people need to earn a lot to repay their debts while companies are starting to complain wages become too high that can result in less profits for the companies and even bankruptcy. Thus, many companies and people have excessive debts they need to repay with wages that increase slower or even decrease and thus more difficult to repay any debts. Indeed, everything is connected and correct itself in one or the other direction. It also shows that regulation is needed to prevent excesses.

Therefore, in a healthy economy, people have an acceptable minimal return on savings because they allow banks to use this money to make profits. Thus, a further lowering of interest rates on savings as some economists think should happen only proofs how bad our economy is whereby bad and counter-rational and counter-intuitive decisions are considered to be good for the economy while in fact it only creates more debts and accumulates money in central banks who than think negative interests may stimulate spending (and thus result in even more debts because people lose money without even spending money at a time when the economy becomes cash free so storing money at home to avoid paying interests on your own money is no longer an option. Thus, I think a minimum interest on saving accounts such as 2% should be law as it is not normal that people provide money to banks that these banks can invest such as providing mortgages with interests to borrowers and thus earn money from other people's money while those who save and thus lend money to banks receive little to nothing in return and even pay more because bank accounts costs money to pay banks for services they provide.