Before I talk about fancy concepts, I figured I should talk about a topic that lies at the heart of economics.
Why is there an interest rate in the first place?
If you don't understand the question, if I borrow money from you, why should I pay you more tomorrow than today? In fact, why should I pay you at all?
Ah, ha!
Lending money comes with risk. The risk that the counterparty may never pay it back at all.
So money tomorrow is worth a little more than money today, and that's why lenders charge interest!
We're going on to build on this modest concept so hang with me.
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