Does money evaporate?

I have already written an introduction to the subject of interest rates, and now I would like to put some flesh on the bones.

Why is it that so many people – including many who ought to know better – would have us believe that interest rate rises harm the economy?

Why is it that so many people would have us believe that interest rate cuts are good for the economy?  If this were true, then surely any sensible government would cut interest rates to zero and leave them there. 

The reason why this does not happen is that low interest rates are not always the right thing for the economy.

When interest rates increase, people with mortgages pay more in interest on their mortgages, and therefore have less money to spend on other goods.  Nevertheless this money that they are paying in interest on their mortgages does not evaporate.

Some of that money is paid out to savers in higher interest payments, and some of it is paid out to shareholders in dividends, and some of it is doubtless paid out to directors in bonuses.  Some of the money might even find its way into the coffers of the Treasury in the form of taxation.

Any of the various recipients of this money can choose to either spend it or save it.

In the same way, when interest rates are reduced, people with mortgages pay less in interest, but savers earn less, and so on.  The people with mortgages who are better off can choose to spend their extra money or save it.

When money is spent, it can boost the economy.  That is obvious.  When the money is saved, it provides money for the banks to lend out to people and businesses, and that too can help the economy.  That is not so obvious, but you might nevertheless expect politicians and economists to grasp that fact.