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Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

bankofengland.co.uk

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Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#31

Post by sudosysgen »

ahepp wrote: post #25
sudosysgen wrote: post #11

Earlier quoted context omitted.

That would be positive time value.

I believe it would be negative time value? It is generally assumed that in an inflationary economy, a dollar today is worth more than a dollar tomorrow The post above seems to talk about deflation. It's possible we're just using a different sign convention (or perhaps I've missed something more fundamental)

Yeah, I do think we're just using different sign conventions here, because of inflation and opportunity cost a dollar today should be worth more than a dollar tomorrow.

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#32

Post by waterhouse »

ahepp wrote: post #21
koolba wrote: post #18

Earlier quoted context omitted.

> ... currencies haven't been debased ... We’ve printed trillions of dollars and Congress is en route to print trillions more. The price for that has yet to be paid.

Yet interest rates have yet to respond (unless I have missed some major news). You are correct to point out the risk, but I don't think we can call it currency debasement yet.

Ceteris paribus, creating more money reduces its value. If, over some time period, you double the money supply, yet the monetary price of a basket of consumer goods stays the same, then that means the monetary price would have been cut in half if you hadn't printed anything. So, just because other effects are strong enough to counteract your debasing doesn't mean you're not debasing the currency.

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#33

Post by s1artibartfast »

lmkg wrote: post #23
kristopolous wrote: post #13

This isn't surprising. Risk and rates are related and there's been an increase in stability and decrease in risk throughout the centuries. As far as a stable society goes, low interest rates are a good sign Even amidst this terrible pandemic, no country has collapsed, nobody has gone to war, currencies haven't been debased, all protests have more or less been handled, nothing is truly out of control. Mass death and f…

It's somewhat surprising because the recognition of "risk" as a concept is much more recent, and its relation to finance and rates much more recent than that. If the relation between risk and rates of return has held for longer than that, then it means that it's an emergent phenomenon of markets without anyone actually using it as an intentional strategy.

>it means that it's an emergent phenomenon of markets without anyone actually using it as an intentional strategy.

This is what pretty much every economist has said about market behavior. Participants don't need to understand theory for the markets to work. In fact, things get weird when participants DO understand it. Humans set prices long before written language was developed to describe supply and demand.

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#34

Post by VinLucero »

hardlianotion wrote: post #10

“ 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.” Them’s fighting words.

I thought the same thing. I need to go deeper and understand how this contrasts with Piketty. Anyone have a TL;DR for this thread?

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#35

Post by anewaccount2021 »

ahepp wrote: post #21
koolba wrote: post #18

Earlier quoted context omitted.

> ... currencies haven't been debased ... We’ve printed trillions of dollars and Congress is en route to print trillions more. The price for that has yet to be paid.

Yet interest rates have yet to respond (unless I have missed some major news). You are correct to point out the risk, but I don't think we can call it currency debasement yet.

We printed more money last year than we printed from 1776-2000. The dollar has already lost 99% of its purchasing power from its inception (that isn't agitprop, its a verifiable fact when measured against fixed commodities over time).

How much house can a dollar buy versus twenty years ago? If the dollar was indeed rising in value over time, a dollar would buy more house today than in 2000. Before we left the gold standard, a dollar indeed held its purchasing power over decades. The price of gold is effectively an inverse measure of the value of a dollar given that the amount of gold is basically fixed.

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#36

Post by mindvirus »

voodootrucker wrote: post #5

It took me a while to get it, but this all works in the opposite direction as well. The time value of money can be negative: A dollar today can be worth more than a dollar tomorrow. It's not pretty. When the pie is shrinking the incentives get ugly rapidly. Let's hope this can be a "good" deleveraging, we fix metrics that don't positively correlate with non-zero-sum productivity growth, and on top of that pull the ne…

I would think a dollar today is necessarily at least as valuable than a dollar tomorrow, since a dollar today can either be a dollar tomorrow or a dollar today - i.e. it has optionality built in.

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#37

Post by joe_the_user »

lmkg wrote: post #23
kristopolous wrote: post #13

This isn't surprising. Risk and rates are related and there's been an increase in stability and decrease in risk throughout the centuries. As far as a stable society goes, low interest rates are a good sign Even amidst this terrible pandemic, no country has collapsed, nobody has gone to war, currencies haven't been debased, all protests have more or less been handled, nothing is truly out of control. Mass death and f…

It's somewhat surprising because the recognition of "risk" as a concept is much more recent, and its relation to finance and rates much more recent than that. If the relation between risk and rates of return has held for longer than that, then it means that it's an emergent phenomenon of markets without anyone actually using it as an intentional strategy.

I don't think the concept of risk broadly speaking could possible be new.

The danger that things might not work out had to be thought out since you had societies of moderate levels of complexity.

See: https://en.wikipedia.org/wiki/History_of_insurance#Ancient_e...

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#38

Post by gruez »

rland wrote: post #28
voodootrucker wrote: post #5

It took me a while to get it, but this all works in the opposite direction as well. The time value of money can be negative: A dollar today can be worth more than a dollar tomorrow. It's not pretty. When the pie is shrinking the incentives get ugly rapidly. Let's hope this can be a "good" deleveraging, we fix metrics that don't positively correlate with non-zero-sum productivity growth, and on top of that pull the ne…

We're going to have to, at some point, stop relying on exponential growth, and move to a sustainable (i.e. 0% rate of return) environment. For the biosphere's sake that ought to happen sooner rather than later. If we continue growing the economy at 2-3% YoY we will be extracting all energy from the Milky Way in 1000 years and applying it to the economy. Not probable! Clearly there is some transition to the upper part…

>If we continue growing the economy at 2-3% YoY we will be extracting all energy from the Milky Way in 1000 years and applying it to the economy. Not probable!

gdp growth =/= energy consumption growth

Also 1.03^1000 = 6.810^12, but wolframalpha says the number of stars in the milky way is 310^11. Considering that we're nowhere close to capturing even 1% of the energy output of energy that reaches the earth, let alone all the energy that the sun emits, your estimate of 1000 years is probably off by a few orders of magnitude. Finally, if we're actually capturing all the energy of the milky way, presumably we'd be a space faring civilization and can therefore colonize other galaxies, making that a non-issue.

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#39

Post by teruakohatu »

rland wrote: post #28
voodootrucker wrote: post #5

It took me a while to get it, but this all works in the opposite direction as well. The time value of money can be negative: A dollar today can be worth more than a dollar tomorrow. It's not pretty. When the pie is shrinking the incentives get ugly rapidly. Let's hope this can be a "good" deleveraging, we fix metrics that don't positively correlate with non-zero-sum productivity growth, and on top of that pull the ne…

We're going to have to, at some point, stop relying on exponential growth, and move to a sustainable (i.e. 0% rate of return) environment. For the biosphere's sake that ought to happen sooner rather than later. If we continue growing the economy at 2-3% YoY we will be extracting all energy from the Milky Way in 1000 years and applying it to the economy. Not probable! Clearly there is some transition to the upper part…

> If we continue growing the economy at 2-3% YoY we will be extracting all energy from the Milky Way in 1000 years

That argument is built on the fact that we don't find efficiencies. A lot of economic growth is simply much more efficient use of resources, ie less resources and much greater return. A couple of decades ago you needed a lot of expensive copper to connect a city with phone and slow internet access. Now all you need is cheap thin plastic for gigabit+ speeds.

A computer 70 years ago was an enormous contraption made of of literally tons of expensive metal components, while a raspberry pi zero has a tiny bit of copper, resin and silicon. The latter is vastly more powerful and cheaper.

Sure, growth can't last forever, but we have a long way to go.

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#40

Post by pishpash »

ahepp wrote: post #21
koolba wrote: post #18

Earlier quoted context omitted.

> ... currencies haven't been debased ... We’ve printed trillions of dollars and Congress is en route to print trillions more. The price for that has yet to be paid.

Yet interest rates have yet to respond (unless I have missed some major news). You are correct to point out the risk, but I don't think we can call it currency debasement yet.

Interest rates have yet to respond because they are being held down actively by central banks. Those are not market forces.
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