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One way to visualize the damage from ZIRP is to recognize that the spread between real and nominal interest rates is analogous to the spread between rates on default-free and risky debt.
FORBES: Magazine Article
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By suppressing nominal interest rates and pushing real rates into negative territory, the Fed has engaged in financial repression.
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Because all member states share the same nominal interest rate, slow-growing economies with lower inflation, such as Germany and Italy, have higher real interest rates than fast growers, such as Spain and Greece.
ECONOMIST: World economy
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Real interest rates are basically a function of economic growth and the difference between real rates and nominal rates rooted in inflation calculations.
FORBES: Interest Rates Are What Unite Economics And Finance
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The answers to those questions can be found by examining whether the rise in nominal rates is also accompanied by rising real interest rates and if the rise in the dollar is due to a decrease in its supply.
FORBES: Gold's Allure Tied to Interest Rates
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It seems to be evaluating past monetary policy in terms of the change in nominal rates (which rose in 2004 and 2005) rather than the level of real interest rates (which was low from 2002 through the first part of 2006).
FORBES: More Malpass: Watch for 2007 Slowdown
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With inflation expectations that exceed the nominal interest paid on saving accounts, money market funds, and Treasuries, real returns are negative.
FORBES: Bernanke Administers Another Cruel Dose Of Financial Morphine With QE3
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This means that unless investors are repeatedly surprised, inflation will lead to higher nominal interest rates as debt is refinanced, and in turn to an unchanged real debt.
ECONOMIST: Economics focus
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Most importantly, when nominal interest rates can go no lower, a higher inflation rate corresponds directly to a lower, and more stimulating, real interest rate.
ECONOMIST: Quantitative easing: QE, or not QE? | The