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TL;DR: real interest rates have been falling for as long as we have records (going back to the 15th century) once you average out some cyclical volatility. Impl

TL;DR: real interest rates have been falling for as long as we have records (going back to the 15th century) once you average out some cyclical volatility. Implication is that people waiting for interest rates to bounce back up significantly from their post-great-recession, post-QE lows should probably not expect them to return to anywhere near their historical levels. As a personal saver/investor, the upshot for me is that just because a certain level of retirement savings would have been enough to generate a comfortable income in historical simulations, doesn't mean that it will necessarily be enough to support me in the ultra-low-interest-rates future. So I should probably save more before retiring than I otherwise might.

barbegal 8y ago
Or should you just save more than the average person and hope that when you reach retirement higher taxes or deflation helps you out.
garmaine 8y ago
Or you should be investing in stocks rather than collecting usury.
- garmaine 8y ago
  I'm not sure why I'm being downvoted? This article is about real the return component, aka usury, of interest rates on T-bills, and by extension savings accounts. The return rates of private equities (stocks) is not tied to this number.
  - paganel 8y ago
    I didn’t downvote you, but reading your comment it looked like you treated interest-based incomes as somehow morally “bad” (at least judging by your use of the term “usury”) and you contrasted that with stock-exchanged-based incomes which, as a result, were painted in a morally “better” light. There were probably some HN-ers who didn’t like that emotional approach. Now, your opinion in itself isn’t wrong, it’s what the majority of long-term investors suggest, afaik, but I personally think that those investors (including Buffet) have been “blinded” by the exceptional economical and political run of the US as a country in the last 70 or so years. Had they been active at the start of the 20th century and had they invested in the Russian, Chinese or even German stock-exchange their funds would have been completely wiped out by now, after they themselves would have probably died horrific deaths because of the capitals they held (the case in Russia after 1917 and China after 1948).
    - garmaine 8y ago
      It is unfortunate that the term has both moral character but also a precise meaning that is correct here -- excessive interest in excess of the risk premium. There is unfortunately no common / non-technical word that conveys that meaning (excessive interest beyond risks). The savings account interest rate is collected usury--as an FDIC insured deposit account the risk to the account holder is precisely zero, yet a return is nevertheless extracted. That's usury as the term was coined to mean, minus the historical moralistic baggage.
      - mikeash 8y ago
        My dictionary defines it as "the illegal action or practice of lending money at unreasonably high rates of interest." It gives no alternate definition. If that isn't what you meant then I think you should use a different word.
        garmaine 8y ago
        it Is what I meant, except for the illegal part which I believe is a bad definition here, and emphasis on the fact that “unreasonable” is up for debate. In many circles any real interest rate (meaning beyond the risk premium) is an economic rent and therefore unreasonable and correctly described as usury. Whether it is legal or not depends on the jurisdiction.
        mikeash 8y ago
        If it’s not illegal then it’s not usury, sort of like how it’s not murder if it’s legal to kill that person.
        garmaine 8y ago
        The term usury has religious origins predating the modern concept of law. It is a term used by law not invented for it.
  - lkrubner 8y ago
    I didn't downvote you, but it would be reasonable to downvote you simply because your original sentence doesn't express a full idea. You could have added another sentence or two to explain what the advantage of the stock market is. However, your follow up also seems inaccurate: "interest rates on T-bills" The article covers a period of 700 years, so clearly more than T-bills are under discussion.

barbegal 8y ago

Or should you just save more than the average person and hope that when you reach retirement higher taxes or deflation helps you out.

garmaine 8y ago

Or you should be investing in stocks rather than collecting usury.

garmaine 8y ago
I'm not sure why I'm being downvoted? This article is about real the return component, aka usury, of interest rates on T-bills, and by extension savings accounts. The return rates of private equities (stocks) is not tied to this number.
- paganel 8y ago
  I didn’t downvote you, but reading your comment it looked like you treated interest-based incomes as somehow morally “bad” (at least judging by your use of the term “usury”) and you contrasted that with stock-exchanged-based incomes which, as a result, were painted in a morally “better” light. There were probably some HN-ers who didn’t like that emotional approach. Now, your opinion in itself isn’t wrong, it’s what the majority of long-term investors suggest, afaik, but I personally think that those investors (including Buffet) have been “blinded” by the exceptional economical and political run of the US as a country in the last 70 or so years. Had they been active at the start of the 20th century and had they invested in the Russian, Chinese or even German stock-exchange their funds would have been completely wiped out by now, after they themselves would have probably died horrific deaths because of the capitals they held (the case in Russia after 1917 and China after 1948).
  - garmaine 8y ago
    It is unfortunate that the term has both moral character but also a precise meaning that is correct here -- excessive interest in excess of the risk premium. There is unfortunately no common / non-technical word that conveys that meaning (excessive interest beyond risks). The savings account interest rate is collected usury--as an FDIC insured deposit account the risk to the account holder is precisely zero, yet a return is nevertheless extracted. That's usury as the term was coined to mean, minus the historical moralistic baggage.
    - mikeash 8y ago
      My dictionary defines it as "the illegal action or practice of lending money at unreasonably high rates of interest." It gives no alternate definition. If that isn't what you meant then I think you should use a different word.
      - garmaine 8y ago
        it Is what I meant, except for the illegal part which I believe is a bad definition here, and emphasis on the fact that “unreasonable” is up for debate. In many circles any real interest rate (meaning beyond the risk premium) is an economic rent and therefore unreasonable and correctly described as usury. Whether it is legal or not depends on the jurisdiction.
        mikeash 8y ago
        If it’s not illegal then it’s not usury, sort of like how it’s not murder if it’s legal to kill that person.
        garmaine 8y ago
        The term usury has religious origins predating the modern concept of law. It is a term used by law not invented for it.
- lkrubner 8y ago
  I didn't downvote you, but it would be reasonable to downvote you simply because your original sentence doesn't express a full idea. You could have added another sentence or two to explain what the advantage of the stock market is. However, your follow up also seems inaccurate: "interest rates on T-bills" The article covers a period of 700 years, so clearly more than T-bills are under discussion.