Quote:
Originally Posted by Flames in 07
My questions are:
First of all, what is 'debased currency'?
Second of all, how does reducing long term interest rates increase inflation. Aren't they opposite things? ie wouldn't interest rates and inflation hold hands together?
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Debased currency simply means it has lost value against a "base" value, usually defined as a currency measured at a specific time (eg: the dollar in 1970). Inflation debases a currency as it is worth less per unit than it used to be worth; a dollar today doesn't buy as much as a dollar did in 1970.
Low interest rates encourage an increase in the money supply (as it is cheap to borrow and invest, and therefore more money is circulated and created), while high interest rates dampen investment, borrowing, and consumer spending, thereby slowing down inflation. The big economic "miracle" of the last decade and a half has been to have low interest rates AND low inflation, which historically been very difficult to achieve.