3.3.4 Financial Markets

Financial markets are an example of supply and demand: the demand for loans competes for the supply of credit.  Lenders supply borrowers with money at a price – an interest rate – that both are prepared to accept.  People and governments tend to borrow more if interest rates are low, and lenders can charge a higher rate of interest if the money supply is tight.

There are several differences, though, between financial markets and the supply and demand for labour or for goods and services:

  • Risk, of loans not being repaid, is a major factor (
  • Banks act as intermediaries between lenders and borrowers; they have become large and exploitative (
  • Financial markets are destabilised by price bubbles, such as that in the American housing market in 2007 (
  • Regulation needs to be changed, to prevent the need for taxpayers to have to ‘bail-out’ banks (
  • Financial markets are asymmetrical: the lender has more power than the borrower (
  • Inflation and fluctuations in currency exchange rates can affect the value of loan repayments (



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This page is intended to form part of Edition 4 of the Patterns of Power series of books.  An archived copy of it is held at https://www.patternsofpower.org/edition03/334.htm