3 ms·
> If you have debt when deflation happens, it can crush you. In a slowly deflating world, (say central bank targeting -2% instead of +2%), debt will be priced
by pishpash 9y ago
> If you have debt when deflation happens, it can crush you.
In a slowly deflating world, (say central bank targeting -2% instead of +2%), debt will be priced at negative interest rates. There is no theoretical problems with this, and in fact negative yielding bonds have already happened.
- AnimalMuppet 9y agoNegative yielding bonds have already happened. But for most of us (as individuals), the debts we owe aren't in the form of bonds. How about negative yielding mortgages? Credit cards? Theoretically, they could happen. In practice, they probably won't, at least for a while after the start of the deflation.
- pishpash 9y agoWhat difference does it make? In a competitive money market, negative rate loans will appear. Lenders still make a spread. The issue is not positive or negative rates, but whether the price expectation is stable or unstable. As long as the absolute value of price change is small the price is stable. As for why central banks prefer positive rather than negative, that's the better question.