Post
Topic
Board Economics
Re: Interest rates in a deflationary currency
by
aaaxn
on 02/06/2013, 21:25:26 UTC
It was a good answer to the original poster's question: 'How do banks pay their lenders?'  The OP seemed to be under the mistaken impression that a specific business (a bank) needs to increase the stock of money to to pay the interest off loans.  The truth is that profit can pay the interest.
Yes, I reread thread and I agree.

Also, if the currency is increasing in value 20% per year, think about why that is.  It's because of economic growth.  If you can't have economic growth with the currency appreciating that much, then the growth slows, and the currency increases in value at a lower rate.
Economic growth is only one of reasons that can cause deflation. It can also be caused by shrinking money supply (eg. credit bubble pops) or by increase of money demand (all people at once are worried and starts to accumulate savings in money) and whatever the reason economy as you said will adjusts growth lower. But why accept slower growth just because of certain monetary system?