SPIEGEL: You mean some kind of haircut?
Reinhart: Yes. But we are in an environment where politicians are very reluctant to do write-offs. So what happens is that money is transferred from savers to borrowers via negative interest rates.
SPIEGEL: In other words: When the inflation rate is higher than the interest rates paid on the markets, the debts shrink as if by magic. The downside, though, is that this applies to the savings of normal people.
Read the rest of the Spiegel interview with Harvard economist Carmen Reinhart.
2 comments:
Tyler Cohen recently pointed out that inflation effectively takes money away from consumers and gives it to exporters. It's good that we're seeing discussion point out that after all, there's no such thing as a free lunch.
Dan,
These are strange times.
Michael
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