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Eight centuries of global real interest rate decline
Old 01-14-2020, 09:59 AM   #1
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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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Old 01-14-2020, 10:14 AM   #2
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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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Old 01-14-2020, 12:57 PM   #3
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Quote:
Originally Posted by Markola View Post
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!?
Yup: world debt at record high. See the current thread here:

World Debt increase

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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Old 01-14-2020, 02:00 PM   #4
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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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