Please bear with my limited knowledge of monetary systems. I've got degrees in Comp Sci and Math, and i work as an ml engineer, so I'm pretty used to numbers. But, i simply can't wrap my mind around the logic of our financial system. Is there someone out there who can help me understand whats going on?
One can take up a loan at 1% interest rate to buy a house. (In Denmark, 2-3% in the US )
Why would anyone want to lend money at such a low interest rate?
Looking at price changes over the past 10 years, inflation is somewhere in the range 5-8% per year. I know there is something called CPI which claims inflation to be at 2% per year, but there seems to be little correlation between the CPI index and actual observed inflation.
So, i can get a loan, then buy assets with the loan, and quite rapidly inflation has eroded away the debt that i owe. And I am left with assets essentially bought to me by whoever lend me the money in the first place..
So whoever is giving me this loan is essentially giving me lots and lots of money. Why would they do this? Who is it? It doesn't make any sense to me.. When inflation is this high, the only logical thing would be for interest rates on loans to also be high?
Clarification: The 5-8% inflation is just a ballpark number i came up with. I live in a big city, and the price on everything from coffee to homes has increased in the range 50 to 200% over the past 11 years. My questions are: Are interest rates this low because lot's of investors with money want to lend their money, so when borrowing money i can get a good low rate. Or is there something else making the interest rate low? Who is it that gives the money in exchange for getting it back X years later plus 1-3% interest per year?