Borrowing is inflationary in the short term, and deflationary in the long term. In the short term the money supply goes up. In the long term the interest paid o

Borrowing is inflationary in the short term, and deflationary in the long term. In the short term the money supply goes up. In the long term the interest paid on borrowings reduce money supply and the principal must be repaid, these two events are deflationary. (The interest disappears into the central bank.) Paying down debt is deflationary in the short term, and inflationary in the long term. In the long term the interest paid on debt is reduced to zero, and gives the borrower room to borrow more again, or to accrue savings to earn interest. These events are inflationary. This is related to the Fisher equation. [1] nominal interest rate = real interest rate + inflation In the long term, the more nominal interest rate goes up, the more inflation there is. (Take this to the extreme at 1000% interest rates - everyone who can't pay their interest defaults in the short term, causing a sharp deflationary spike. The remaining people or banks with money put their money in the central bank, earn their 1000% interest, and from then on money supply increases exponentially at 1000% per year). The reason why they're talking about negative interest rates is, because in the past the governments and central banks have encouraged so much debt and lowered the interest to zero bound, causing a sharp inflationary spike (2009-2011), and are now experiencing the consequences of deflation due to excessive debt, which is postulated to happen "in the long term" by the Fisher equation. That nominal positive interest businesses and consumers pay is causing the deflation. That's why central banks are discussing whether negative interest rates could undo the consequences of their previous low interest rate policy, which causes inflation in the short term, and deflation in the long term. [1] https://en.wikipedia.org/wiki/Fisher_equation https://en.wikipedia.org/wiki/Fisher_equation