Cheap Money for Dummies

Alright, so "cheap money" is a term that's used in economics and finance. When we talk about "cheap money," we're not referring to actual physical money being inexpensive. Instead, we're talking about the cost of borrowing money, like when you take out a loan from a bank or use a credit card.

So, when we say "cheap money," we mean that it's easy and inexpensive for people, businesses, or governments to borrow money. This typically happens when interest rates are very low, making it more affordable for borrowers to access funds. When money is considered "cheap," it means that lenders are charging a lower interest rate, so borrowers don't have to pay back as much on top of the amount they borrowed.

This can happen for a variety of reasons. For instance, a central bank might lower interest rates to stimulate the economy, making it easier for businesses to invest and create jobs. When money is cheap, it can be good for borrowers because they can access funds at lower costs, but it could also have downsides, like encouraging excessive borrowing or leading to inflation.

In contrast, "expensive money" would mean that interest rates are high, making it more costly for people to borrow. This could happen if a central bank raises interest rates to cool down an overheated economy and prevent inflation from getting out of control.

So, when we talk about "cheap money," we're really talking about the cost of borrowing and how it can impact economic activity. It's like getting a discount at your favorite store - when money is cheap, it's like borrowers are getting a good deal on their loans, making it easier for them to access the funds they need.