Negative Interest Rates
If there is a negative real interest rate, it means that inflation is more than the interest. Suppose if the Federal funds rate is 2% and the inflation rate is 10%, then it means that the borrower would gain 7.27% of every dollar borrowed.
This may lead to malinvestment and business cycles, as the borrower experiences a net profit by repaying principal with inflated (devalued) dollars.
Read more about this topic: Inflation Tax
Famous quotes containing the words negative, interest and/or rates:
“Isolation in creative work is an onerous thing. Better to have negative criticism than nothing at all.”
—Anton Pavlovich Chekhov (1860–1904)
“A man’s interest in a single bluebird is worth more than a complete but dry list of the fauna and flora of a town.”
—Henry David Thoreau (1817–1862)
“In the U.S. for instance, the value of a homemaker’s productive work has been imputed mostly when she was maimed or killed and insurance companies and/or the courts had to calculate the amount to pay her family in damages. Even at that, the rates were mostly pink collar and the big number was attributed to the husband’s pain and suffering.”
—Gloria Steinem (20th century)