• Dark_Blade@lemmy.world
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        1 year ago

        lol if you want a more elaborate answer, it’s because interest-free loans don’t offer any incentive to lenders, which mean they would be incentivized to hoard. The way it works now, however, makes it so institutional lenders benefit massively from injecting colossal amounts of wealth directly into the economy itself; that too in a way that directly benefits the working class by increasing their purchasing power and helping shift goods, which helps boost employment.

        Of course, injecting too much money into the economy is also terrible (the world has limited resources, after all) so interest rates can also help act as ‘breaks’ to prevent uncontrollable devaluation of currency. If all loans were interest-free, then we’d be far more irresponsible with our money (eg venture capitalists who took massive loans that could be poured into money pits like Reddit and Twitter).