Elsewhere I have been talking with /u/sleek22 about the Loanable Funds market. I think sleek22 has been overly influenced by MMT. So, I'm going to take a minute to describe the loanable funds market.

The overall concept is simple. On the one side we have lenders who lend out capital. On the other side we have borrowers who borrow money. The lenders charge a price for providing capital and usually that's an interest rate.

There are a few things we have to remember here. Firstly, it's not really one market. One separation is risk, lenders will charge more interest on higher-risk loans. That's quite easy to understand through the concept of the risk premium. Every duration of loan is separate in a sense. A lender will not offer the same interest rate on a 10 year loan as a 5 year loan, or an overnight loan.

Secondly, there are the Central Banks and Governments and their actions. The important thing here is the just because the government intervenes in a market doesn't mean that such a market doesn't exist. It means that things are different certainly, but it doesn't mean that no market exists. To give a comparable example, we still have supply of money and demand for money even though the Central Bank can create fiat money whenever they want.

What do people here think about the loanable funds market?