Reply To: Some questions


How would negative interest rates work in the real world? If interest rates are always supposed to be positive due to time having value, than can there be a capital structure in a negative interest rate environment? Would it theoretically mean that we would prefer less goods in the future to more goods now? If that were true, in a theoretical capital structure, would that mean that we would transform goods of more value to less value?

I was curious on how negative interest rates would look on the capital structure. I used Edward Fuller’s graph for Net Present Value ( in his last picture. I made a graphical representation of what I think negative rates would look like. I don’t know if I did it right, but it doesn’t make any sense for the capital structure to go negative. Hopefully the link below will work:

Looking at the graph, it tells me a few absurdities already. One, any project’s cash flows that are below the initial cost to produce have a value. Two, looking at the PPF, it would suggest that there is negative consumption goods production, which tells me that somehow there is some sort of conflict between production and human capability of living forever and needing nothing to consume, which begs the question if humans need to produce in the first place.