Business, Economics, Economy, Macroeconomy, Microeconomy, Personal, Thoughts

The ant, the grashopper and the interest rates

I sincerely wished I could write about something else, but these days I’ve been spending a great deal of the time I don’t have absorbed by the financial markets.

And I’ve come to think of Aesop’s fable (click here for the Wikipedia entry): the ants and the grasshoppers, and the way they would have related to interest rates.

Since the ants are the hard-working ones in the fable. They are the ones that build the real economy, the ones that have their savings in the bank, in the safest financial products. On the other hand the grasshoppers don’t really worry about working hard, they are prone to risk and they aim for quick profits, regardless of the consequences.

Okay, now with the interest rates. Reasonably low interest rates benefit the ants because they can access funding with a reasonable price and still get a basic return for their savings while keeping them safe for the future. After all they are risk-averse creatures.

But if the interest rates go too low, close to nil, then it’s the time for the grasshoppers. Who cares about saving, who cares about the long term while short term is cheaper and you can still carry-trade. Short-term benefits are in order, even castles in the sand if they can be sold somehow, and when there’s no limit to the castles in the sand you can build, there’s no limit to growth. Screw Kondratiev!

In the end, it seems that the ants will end up saving the grasshoppers, just like in the fables. Lesson learned… or is it not? 😉

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4 thoughts on “The ant, the grashopper and the interest rates

  1. I like your attempt at reconciling the metaphor. However, in a world of “creative destruction” there is no saving anyone really. Unless, of course, it’s all lip service…

  2. Matthew says:

    Gabriel

    Who will come out of this better off, the grasshopper or the ants? It is my belief that the grasshopper will not change his ways, even though he’ll give a nice speech to that effect. Once the major crisis is out of the way, and a little humble pie eaten, the grasshopper will revert to his old ways and we’ll re-enter the cycle of boom and bust.

    I do not think that the measures taken, at present, will address the problems built into the market in that traders seek ever newer ways to outflank regulation, and the regulators are always one step behind. The instruments traded and in many ways gambles and are designed for short-term gain only.

    We need some pain in the market but it needs to be focussed with a goal of delivering a better system once this is over. However I do not believe that governments, whose parties get a lot of their fundings from such companies, will be willing to put in the time, and effort, to reform what is a very complex system.

    So says the world’s greatest cynic!

  3. johnymepeino says:

    Perhaps before I was a grasshopper.
    Perhaps you’ve been the best model of ant for me.
    Perhaps for that reason I am a UOC’s student this year.
    Thanks Master.

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