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It's important to put that in context. The 80s and early 90s where abnormal going back to the 1700s: https://www.getloans.com/blog/220-year-history-of-interest

It's important to put that in context. The 80s and early 90s where abnormal going back to the 1700s: https://www.getloans.com/blog/220-year-history-of-interest-rates/ https://www.getloans.com/blog/220-year-history-of-interest-r... Conversely, extremely low rates in the 2010s were also abnormal.

rcme 3y ago
Interest rates have also been falling for 700 years: https://www.visualcapitalist.com/700-year-decline-of-interest-rates/ https://www.visualcapitalist.com/700-year-decline-of-interes...
- themgt 3y ago
  Those are real interest rates. The real rate currently is still extremely low. There's still a huge difference between an economy where you get: * 2% mortgage, 2% real growth and 2% inflation * 7% mortgage, 0% real growth and 5% inflation If we wind up in stagflation we may still have low real interest rates but everyone will be having a bad time.
  - ericmay 3y ago
    I'm kind of curious what it means (and why) for real interest rates to be going down over time like that graph depicted (and assuming it's accurate). Is it a lack of global economic growth because of natural resource depletion? For example, you could probably get away with a loan for 18% real if you can sail to America and (leaving politics/historical atrocities aside for a moment) come back with a ship full of gold. If I had to take a loan with a rate that high I don't think I could possibly pay it back (if it's enough money) without multiple jobs or somehow getting lucky. I don't know that my labor could produce enough.
    - bobthepanda 3y ago
      These are the shockwaves of the Chinese economy slowing down. China has been a large source of new demand for years, particularly for resource extraction economies; zero-covid supply chain shocks were the first wave, China’s property shock was a second, and economics are not quite back to solid yet either. For decades it has been easy to invest in China; it is not really so easy or cheap to develop in other areas, because postwar East Asia really focused on efficient infrastructure rollout, and now private companies have to pick between countries with cheap labor and countries with good infrastructure.
    - parmenidean 3y ago
      Yeah, there are a lot of interesting theories regarding this (which were far more common in the halcyon days of 2021, when it seemed like ZIRP was the new normal). I actually think an underrated piece of this is that investments have become far less capital intensive. Business in previous economic cycles required a huge amount of capital to begin and maintain: railroads, oil, manufacturing all require enormous sums of capital to continue. Conversely, the dominant businesses in this economic cycle are all Internet based. Google, Meta, etc could run for 1,000 years without substantial cash need, it's a far less capital intensive model. You can see this reflected statistically: the FCF yield of the S&P 500 is 2x what it was in 1990. If businesses need far less cash than before yet remain highly productive, it stands to reason real interest rates would drop: the demand for capital by economic drivers has gone down, while the supply of capital has increased through FCF gains.
      - ericmay 3y ago
        I wonder if something like space colonization/resource extraction would reverse or change the trend toward lower interest rates? I imagine (perhaps excluding some sort of sci-fi esque replicator robots) such endeavors would be very capital intensive.
    - thfuran 3y ago
      On the other hand, you'd probably need a high interest rate to justify offering that loan in a time when a transatlantic journey was significantly less predictable and more dangerous.
      - ericmay 3y ago
        Good point - much more risky.
    - jjoonathan 3y ago
      "Global Savings Glut" is the term to search.
      - ericmay 3y ago
        Do you have any particular articles or blog posts or anything you'd care to share? I could search of course but I'm not sure if there's a canonical article.
        jjoonathan 3y ago
        https://en.wikipedia.org/wiki/Global_saving_glut https://en.wikipedia.org/wiki/Global_saving_glut The key insight is that savings and investment opportunities are two sides of a single market. Demand and supply. Savings grow reliably and opportunities do not, so demand for investment opportunities outstrips supply of investment opportunities. Therefore, the opportunities get more expensive = lower rate of return.
      - deltree7 3y ago
        Yep, this is the answer
    - deltree7 3y ago
      real Interest rate is really a function of supply/demand of money. The world in increasingly having more supply of money (savings) than before. It doesn't look like from a median household perspective, but we have a glut of overall money
- everybodyknows 3y ago
  > According to the report, another trend has coincided with falling interest rates: declining bond yields. Huh? Those are two terms for the same thing.
jrochkind1 3y ago
That graph basically makes me think there is no "normal" and no trend, it appears to just jump all over the place, widely, continuously. i don't know if that's right, but that's my reaction to that graph!
- JumpCrisscross 3y ago
  > graph basically makes me think there is no "normal" and no trend You're right. The data shows "across successive monetary and fiscal regimes, and a variety of asset classes, real interest rates have not been 'stable', and that since the major monetary upheavals of the late middle ages, a trend decline between 0.6-1.8bps p.a. has prevailed. A consistent increase in real negative-yielding rates in advanced economies over the same horizon is identified, despite important temporary reversals such as the 17th Century Crisis. Against their long-term context, currently depressed sovereign real rates are in fact converging 'back to historical trend' – a trend that makes narratives about a “secular stagnation” environment entirely misleading, and suggests that – irrespective of particular monetary and fiscal responses – real rates could soon enter permanently negative territory" [1]. Basically, over the very long run, real rates go down 0.6 to 1.8 basis points (1/100th of a percentage point) each year, and tend to be low. We've witnessed a few centuries of extraordinary growth, which mandated resource prioritization, which kept rates high. TL; DR Anyone talking about where rates "should" be based on looking at charts is often talking tripe. [1] https://economics.rutgers.edu/downloads-hidden-menu/news-and-events/workshops/money-history-and-finance/1823-paulschmelzing/file https://economics.rutgers.edu/downloads-hidden-menu/news-and....
- redblacktree 3y ago
  One pattern I noticed was that the low-to-low was about 40 years. We should probably expect rates to continue to rise over the next couple of decades before subsiding again, if that graph is any indication.

rcme 3y ago

Interest rates have also been falling for 700 years: https://www.visualcapitalist.com/700-year-decline-of-interest-rates/ https://www.visualcapitalist.com/700-year-decline-of-interes...

themgt 3y ago
Those are real interest rates. The real rate currently is still extremely low. There's still a huge difference between an economy where you get: * 2% mortgage, 2% real growth and 2% inflation * 7% mortgage, 0% real growth and 5% inflation If we wind up in stagflation we may still have low real interest rates but everyone will be having a bad time.
- ericmay 3y ago
  I'm kind of curious what it means (and why) for real interest rates to be going down over time like that graph depicted (and assuming it's accurate). Is it a lack of global economic growth because of natural resource depletion? For example, you could probably get away with a loan for 18% real if you can sail to America and (leaving politics/historical atrocities aside for a moment) come back with a ship full of gold. If I had to take a loan with a rate that high I don't think I could possibly pay it back (if it's enough money) without multiple jobs or somehow getting lucky. I don't know that my labor could produce enough.
  - bobthepanda 3y ago
    These are the shockwaves of the Chinese economy slowing down. China has been a large source of new demand for years, particularly for resource extraction economies; zero-covid supply chain shocks were the first wave, China’s property shock was a second, and economics are not quite back to solid yet either. For decades it has been easy to invest in China; it is not really so easy or cheap to develop in other areas, because postwar East Asia really focused on efficient infrastructure rollout, and now private companies have to pick between countries with cheap labor and countries with good infrastructure.
  - parmenidean 3y ago
    Yeah, there are a lot of interesting theories regarding this (which were far more common in the halcyon days of 2021, when it seemed like ZIRP was the new normal). I actually think an underrated piece of this is that investments have become far less capital intensive. Business in previous economic cycles required a huge amount of capital to begin and maintain: railroads, oil, manufacturing all require enormous sums of capital to continue. Conversely, the dominant businesses in this economic cycle are all Internet based. Google, Meta, etc could run for 1,000 years without substantial cash need, it's a far less capital intensive model. You can see this reflected statistically: the FCF yield of the S&P 500 is 2x what it was in 1990. If businesses need far less cash than before yet remain highly productive, it stands to reason real interest rates would drop: the demand for capital by economic drivers has gone down, while the supply of capital has increased through FCF gains.
    - ericmay 3y ago
      I wonder if something like space colonization/resource extraction would reverse or change the trend toward lower interest rates? I imagine (perhaps excluding some sort of sci-fi esque replicator robots) such endeavors would be very capital intensive.
  - thfuran 3y ago
    On the other hand, you'd probably need a high interest rate to justify offering that loan in a time when a transatlantic journey was significantly less predictable and more dangerous.
    - ericmay 3y ago
      Good point - much more risky.
  - jjoonathan 3y ago
    "Global Savings Glut" is the term to search.
    - ericmay 3y ago
      Do you have any particular articles or blog posts or anything you'd care to share? I could search of course but I'm not sure if there's a canonical article.
      - jjoonathan 3y ago
        https://en.wikipedia.org/wiki/Global_saving_glut https://en.wikipedia.org/wiki/Global_saving_glut The key insight is that savings and investment opportunities are two sides of a single market. Demand and supply. Savings grow reliably and opportunities do not, so demand for investment opportunities outstrips supply of investment opportunities. Therefore, the opportunities get more expensive = lower rate of return.
    - deltree7 3y ago
      Yep, this is the answer
  - deltree7 3y ago
    real Interest rate is really a function of supply/demand of money. The world in increasingly having more supply of money (savings) than before. It doesn't look like from a median household perspective, but we have a glut of overall money
everybodyknows 3y ago
> According to the report, another trend has coincided with falling interest rates: declining bond yields. Huh? Those are two terms for the same thing.

jrochkind1 3y ago

That graph basically makes me think there is no "normal" and no trend, it appears to just jump all over the place, widely, continuously. i don't know if that's right, but that's my reaction to that graph!

JumpCrisscross 3y ago
> graph basically makes me think there is no "normal" and no trend You're right. The data shows "across successive monetary and fiscal regimes, and a variety of asset classes, real interest rates have not been 'stable', and that since the major monetary upheavals of the late middle ages, a trend decline between 0.6-1.8bps p.a. has prevailed. A consistent increase in real negative-yielding rates in advanced economies over the same horizon is identified, despite important temporary reversals such as the 17th Century Crisis. Against their long-term context, currently depressed sovereign real rates are in fact converging 'back to historical trend' – a trend that makes narratives about a “secular stagnation” environment entirely misleading, and suggests that – irrespective of particular monetary and fiscal responses – real rates could soon enter permanently negative territory" [1]. Basically, over the very long run, real rates go down 0.6 to 1.8 basis points (1/100th of a percentage point) each year, and tend to be low. We've witnessed a few centuries of extraordinary growth, which mandated resource prioritization, which kept rates high. TL; DR Anyone talking about where rates "should" be based on looking at charts is often talking tripe. [1] https://economics.rutgers.edu/downloads-hidden-menu/news-and-events/workshops/money-history-and-finance/1823-paulschmelzing/file https://economics.rutgers.edu/downloads-hidden-menu/news-and....
redblacktree 3y ago
One pattern I noticed was that the low-to-low was about 40 years. We should probably expect rates to continue to rise over the next couple of decades before subsiding again, if that graph is any indication.