Individuals' capability of borrowing and lending

Individuals use the financial market to borrow and lend in order to expand their current budgets or their budgets in the future. The interest rates are not added to counter the potential risk, also to compensate the loss of the potential gains from the budget lend out. Therefore, the interest rate is the sum of risk premium, inflation and risk-free rates.

Inflation and risk-free rate are two factors that are determined by the outside world instead of individuals; meanwhile, the risk premium is partially determined by individuals, including employment status and income and other factors.

I always estimate that in the future, the wealth gap existing in our society will become wider; if such estimation is true, I can also expect the differences between individuals' capabilities of borrowing and lending will become larger as well. People who are more capable of lending money to others are also more capable of borrowing more money than the others. When the wealth gap becomes larger, the gap between the most capable people (who can borrow and lend more easily) and the least capable people (who are hardly able to borrow or lend from banks) becomes large. When more people are pushed towards the least capable end, then many banks may stop their commercial banking services as the majority of the population cannot sufficiently provide banks with sufficient assets to support their lending businesses and meanwhile, they do not have the ability to borrow enough to make banks profitable. Under such circumstance, borrowing and lending business for individuals becomes less profitable, as the amount of borrowing and saving is large but the overall volume is insufficient. Under such circumstance, banks will shrink their commercial banking business and use more resources in private banking business which is more profitable.

Overall, the redistribution of wealth is very necessary for our society as if we allow the wealth gap becomes wider and wider, more and more opportunities will be closed for the disadvantageous population and there could be a structural change to make the disadvantageous population more disadvantageous.