DiggerUK

Interest Rates Cannot Go Lower Than Zero

When rates are below inflation, then you pay negative interest.
With rates at zero, and inflation positive, you are paying negative rates.
Any maths Professors out there who can check my formula?


On Dec 19 04:05 PM neutrino23 wrote:

> Just a theoretical point but why can't rates go lower than zero?
> Instead of a contract to repay principal plus alpha after some period
> of time you write a contract to repay principal minus alpha after
> some period of time. Basically you pay people to borrow money.

Interest Rates Cannot Go Lower Than Zero

British understatement dear boy, British understaement.

Interest Rates Cannot Go Lower Than Zero

The net effect of 0% rates must surely mean that you are buying money at less than cost, if inflation stays above zero.
Do the maths, if you borrow now and inflation devalues money, the repayments get steadily easier.
A Zimbabwean who borrowed 1 Million 10 days ago could easily repay that ammount today, and be left with the change.
In a deflationary time of course it would be the opposite.
Whatever one thinks of Fed/Cental bank actions, you have to admit it's bold to move to 0% rates.