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Eight centuries of global real interest rate decline
01-14-2020, 08:59 AM
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#1
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Recycles dryer sheets
Join Date: Apr 2015
Posts: 100
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Eight centuries of global real interest rate decline
This is a very dense read. My take is that 800 years of records show declining real interest rates. Which means the current low rate environment is not an aberration, but rather a return to historical trends.
I guess that means don't expect rates to rise anytime soon. Though one can always hope for "short term" rate spikes here and there.
The abstract:
With recourse to archival, printed primary, and secondary sources, this paper reconstructs global real interest rates on an annual basis going back to the 14th century, covering 78% of advanced economy GDP over time. I show that 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 0.6–1.6 basis points per annum has prevailed. A gradual 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. I also posit that the return data here reflects a substantial share of ‘non-human wealth’ over time: the resulting R-G series derived from this data show a downward trend over the same timeframe: suggestions about the ‘virtual stability’ of capital returns, and the policy implications advanced by Piketty (2014) are in consequence equally unsubstantiated by the historical record.
https://www.bankofengland.co.uk/-/me...-1311-2018.pdf
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01-14-2020, 09:14 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Nov 2013
Location: Twin Cities
Posts: 3,928
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Thanks for the unique read. I’m an economic history major so this kind of topic is like catnip. I wonder what the lessons are? Borrow away!?
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01-14-2020, 11:57 AM
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#3
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Recycles dryer sheets
Join Date: Apr 2015
Posts: 100
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Quote:
Originally Posted by Markola
Thanks for the unique read. I’m an economic history major so this kind of topic is like catnip. I wonder what the lessons are? Borrow away!?
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Yup: world debt at record high. See the current thread here:
http://www.early-retirement.org/foru...-101672-2.html
The other reaction with such low yields is to put more into stocks/real estate vs bonds, pushing asset prices up.
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01-14-2020, 01:00 PM
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#4
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Thinks s/he gets paid by the post
Join Date: Sep 2014
Location: The Great Wide Open
Posts: 3,789
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By having controlled asset inflation, we'll be able to pay off the debts at low interest rates. If rates go through the roof, we'll have a world wide Weimar Republic, and we'll be doomed!
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01-22-2020, 05:51 PM
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#5
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gone traveling
Join Date: Dec 2010
Posts: 538
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what is "R-G?"
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01-22-2020, 06:39 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2016
Posts: 8,968
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And lots of places have negative interest rates. Which is another reason I'm heavy into equities.
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01-23-2020, 08:14 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2004
Location: Laurel, MD
Posts: 8,309
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Quote:
Originally Posted by Bongleur
what is "R-G?"
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I dunno and I’m not sure I understand this excerpt from the abstract:
“Equally, the historical relation between real wealth returns (R) and broader real growth (G) has assumed a central role in the current debates on long-term inequality trends, culminating in the widely- discussed contribution of Piketty (ibid.).”
__________________
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
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01-23-2020, 12:55 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 14,183
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So, all that money dropping from the black helicopters is essentially free to the bank, but my CC would charge me 15-25% if I were dumb enough to carry a balance, and my savings account is paying some fraction of a percent.
Can you say “racket”?
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Have Funds, Will Retire
...not doing anything of true substance...
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01-24-2020, 08:04 PM
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#9
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Full time employment: Posting here.
Join Date: May 2013
Posts: 609
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One question I have is: why now? Why did this report about how rates have been falling for centuries come out NOW, against a backdrop of lowest ever rates rather than, say, in 1975 when rates were skyrocketing and it would have been a provocative and gutsy call? It’s the same sense I get when I gauge all the bullish buy-the-dips talk in the past year. Where were these heroic calls in 2008? Long story short....I don’t plan to live for 700 hundred years so 30 year time frames are much more relevant.
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Saved 8 figures by my mid-40's as a professional bubble-spotter. Beware...the Fed creates bubble after bubble after bubble.
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01-25-2020, 12:18 AM
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#10
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gone traveling
Join Date: Dec 2010
Posts: 538
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"now" because gathering & analyzing the data requires computers that did not exist in 1975.
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01-25-2020, 06:02 AM
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#11
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Recycles dryer sheets
Join Date: Jan 2018
Posts: 186
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Very interesting & thought provoking.
The comment "I don’t plan to live for 700 hundred years so 30 year time frames are much more relevant" is very true for adults planning for or in retirement.
However if just starting in life perhaps the lesson learned would be debt can be a tool for building a successful life. Point being taking a mortgage for a home, education loans, car loans all can make personal growth possible.
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3 ish years to FIRE, mentally ready now!
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01-25-2020, 06:08 AM
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#12
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gone traveling
Join Date: Sep 2018
Location: Washington, DC
Posts: 575
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Quote:
Originally Posted by KenZ71
Very interesting & thought provoking.
The comment "I don’t plan to live for 700 hundred years so 30 year time frames are much more relevant" is very true for adults planning for or in retirement.
However if just starting in life perhaps the lesson learned would be debt can be a tool for building a successful life. Point being taking a mortgage for a home, education loans, car loans all can make personal growth possible.
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True. Also food for thought for the "payoff mortgage vs low interest loan" in retirement debates.
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