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Aren't negative interest rates deflationary by design? When an entity already in debt borrows money at negative interest rates the debt will keep shrinking, th
by samsonradu 7y ago
Aren't negative interest rates deflationary by design?
When an entity already in debt borrows money at negative interest rates the debt will keep shrinking, thus destroying monetary supply.
- Litmus2336 7y agoThe negative interest rates discourages holding money and encourages spending (and investment), which drives inflation. I do not believe negative interest rates destroy money, but I am not an expert. I cannot find any literature to prove or dispute that.
- samsonradu 7y agoYou're right, it does encourage spending and investment. However a part of the money does eventually go into negative interest rate assets (due to regulations etc.) and I believe that shrinks the money supply. Not an expert either.
- imtringued 7y agoYou get $1000. You pay back $950. The monetary supply increased by $50.
- samsonradu 7y agoUhm... no. I borrow $1000 and promise to pay back $1050. Lender now has a $1050 IOU which he will likely put into circulation (borrow against it, trade it etc.). Monetary supply just increased by $50.