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:
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—Charles Horton Cooley (1864–1929)
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—Henry Brooks Adams (1838–1918)