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Turkey tried this, results were catastrophic. Google erdoganomics. We had 8% annual interest and an annual inflation of over 100%, fun times.
by terminalcommand 3y ago
Turkey tried this, results were catastrophic. Google erdoganomics.
We had 8% annual interest and an annual inflation of over 100%, fun times.
- imtringued 3y agoAssuming he uses the zero interest money to do austerity, it could work, at least in theory. Except Erdogan never intended to do austerity. He just wanted to borrow money at low interest. I admit that I misunderstood his intentions.
- terminalcommand 3y agoThe problem was that Erdogan borrowed at a higher interest rate. The issue with countries outside of US is that the local currencies are not accepted anywhere so you cannot cover your deficit by printing money. You need us dollar, gold reserves to back the value of your currency. If you decrease interest rates while you have high inflation, people spend like there is no tomorrow. If you could buy 2 loaves of bread and 2 tvs today, you can only buy 1 loaf of bread and 1 tv in a month's time. So you buy and stock. This creates increased demand which creates increased prices. At some point you don't even know what the prices of things are, manufacturers don't know it as well, so they increase the prices higher to cover anticipated future costs. Your wages rise but your purchase power declines each month. Portions get smaller, prices get higher, you live a shitter life. Inflation is the mother of all evil. If high interest rates are needed to keep it under control it is worth every effort.