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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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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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Old 01-22-2020, 06:51 PM   #5
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what is "R-G?"
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Old 01-22-2020, 07:39 PM   #6
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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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Old 01-23-2020, 09:14 AM   #7
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what is "R-G?"


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.).”
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Old 01-23-2020, 01:55 PM   #8
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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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Old 01-24-2020, 09:04 PM   #9
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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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Old 01-25-2020, 01:18 AM   #10
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"now" because gathering & analyzing the data requires computers that did not exist in 1975.
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Old 01-25-2020, 07:02 AM   #11
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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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Old 01-25-2020, 07:08 AM   #12
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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.
True. Also food for thought for the "payoff mortgage vs low interest loan" in retirement debates.
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