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> why have long term interests declined over the past 500 years, accelerating in the past 50-100 years The cost of money (that is, interest) is based on two th

> why have long term interests declined over the past 500 years, accelerating in the past 50-100 years The cost of money (that is, interest) is based on two things: the time value of money, which is the concept that an amount of money is worth more now than the same amount of money later (above and beyond inflation); and the default risk, that you may not get back some or all of the money that you lent out. As the world became more stable over time, the default risk also lessened over time; and there's a good argument that the time value of money also decreased over time, as the quickening of the pace of technological advances meant that lenders could expect more returns over a shorter amount of time. Both factors combined to gradually decrease interest rates in the recent past. If you believe that we are now in a new era of geopolitical instability, it's reasonable to bet on this long-term trend reversing.

FooBarBizBazz 4y ago
> the time value of money also decreased over time, as the quickening of the pace of technological advances meant that lenders could expect more returns over a shorter amount of time. Isn't this backwards? In a world where money has no time-value, a world where a dollar today is the same as a dollar tomorrow, and the same as a dollar five years from now, then, if there's no default risk, you can pay me back the same dollar I gave you, without interest. Zero interest rates. In a world where everything changes rapidly and I might need money now, I'm going to demand a lot of interest before I'll lend you my cash. Because I'm incurring a lot of opportunity cost by parting with it. If this were a reinforcement learning problem, we might specify a discount factor. If that discount factor were near one, then we'd have a long time horizon. If it were closer to zero, then we'd have a short time horizon. I'd think that low interest rates would go together with a static, unchanging environment, in which money has very little time-value. I do agree, however, with your earlier sentence: > As the world became more stable over time, the default risk also lessened over time
- prottog 4y ago
  > In a world where everything changes rapidly and I might need money now, I'm going to demand a lot of interest before I'll lend you my cash. Because I'm incurring a lot of opportunity cost by parting with it. My logic is that the market participants have the expectation that everything changes rapidly for the better; that is, advances in technology have a deflationary effect and therefore people are happy to lend at a lower interest rate, expecting the same number of dollars to buy more later.
wkyle 4y ago
> The answer to that more likely has to do with some very broad phenomenon: capital has been accumulating due to increases in energy availability. Human talent (that turns capital into something actual) is plateauing due to slowing of population growth. > As the world became more stable over time, the default risk also lessened over time I think these are both saying the same thing from two sides - the default risk going down doesn't really mean anything in isolation. The implied context is the default risk goes down for the same rate of return (or the rate of return goes up for the same default risk).
v0idzer0 4y ago
Why would anyone believe we’re in a new era of geopolitical instability?

FooBarBizBazz 4y ago

> the time value of money also decreased over time, as the quickening of the pace of technological advances meant that lenders could expect more returns over a shorter amount of time. Isn't this backwards? In a world where money has no time-value, a world where a dollar today is the same as a dollar tomorrow, and the same as a dollar five years from now, then, if there's no default risk, you can pay me back the same dollar I gave you, without interest. Zero interest rates. In a world where everything changes rapidly and I might need money now, I'm going to demand a lot of interest before I'll lend you my cash. Because I'm incurring a lot of opportunity cost by parting with it. If this were a reinforcement learning problem, we might specify a discount factor. If that discount factor were near one, then we'd have a long time horizon. If it were closer to zero, then we'd have a short time horizon. I'd think that low interest rates would go together with a static, unchanging environment, in which money has very little time-value. I do agree, however, with your earlier sentence: > As the world became more stable over time, the default risk also lessened over time

prottog 4y ago
> In a world where everything changes rapidly and I might need money now, I'm going to demand a lot of interest before I'll lend you my cash. Because I'm incurring a lot of opportunity cost by parting with it. My logic is that the market participants have the expectation that everything changes rapidly for the better; that is, advances in technology have a deflationary effect and therefore people are happy to lend at a lower interest rate, expecting the same number of dollars to buy more later.

wkyle 4y ago

> The answer to that more likely has to do with some very broad phenomenon: capital has been accumulating due to increases in energy availability. Human talent (that turns capital into something actual) is plateauing due to slowing of population growth. > As the world became more stable over time, the default risk also lessened over time I think these are both saying the same thing from two sides - the default risk going down doesn't really mean anything in isolation. The implied context is the default risk goes down for the same rate of return (or the rate of return goes up for the same default risk).

v0idzer0 4y ago

Why would anyone believe we’re in a new era of geopolitical instability?