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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)

#51

Post by throw0101a »

kangaroozach wrote: post #24
ahepp wrote: post #21

Earlier quoted context omitted.

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.

Printing money is debasing currency, no? We are stealing purchasing power from every holder of dollars.

No, it is not. Inflation causes purchasing power to drop. An increased money supply is necessary, but not sufficient. You also need velocity:

The equation for inflation is: M x V = P x Q

Everyone talks about "printing money" (money supply: M) with the Fed, but no one seems to pay attention to velocity (V). Which has dropped off a cliff:

* https://fred.stlouisfed.org/series/M2V

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

#52

Post by jsweojtj »

mindvirus wrote: post #36
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.

What is a dollar worth besides what it can purchase?

Put another way, if the number of dollars is constant in your account between today and tomorrow, but you can purchase less with it, you've lost wealth.

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

#53

Post by throw0101a »

u678u wrote: post #20

Not sure why they stopped at 2018. They've gone down a lot more since then.

If the paper was published in 2020, that probably means they spend 2019 working on it and doing the research, so the last full year's worth of data they had would have been 2018.

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

#54

Post by gher-shyu3i »

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…

> As far as a stable society goes, low interest rates are a good sign

Zero are even better. We've known for literally thousands of years that interest (usury) is parasitic, immoral, and dangerous. Islam, Judaism, and Christianity all outlaw it. Yet we continue to engage in it and wonder why we end up in mess after mess.

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

#55

Post by freeone3000 »

throw0101a wrote: post #51
kangaroozach wrote: post #24

Earlier quoted context omitted.

Printing money is debasing currency, no? We are stealing purchasing power from every holder of dollars.

No, it is not. Inflation causes purchasing power to drop. An increased money supply is necessary, but not sufficient. You also need velocity: The equation for inflation is: M x V = P x Q Everyone talks about "printing money" (money supply: M) with the Fed, but no one seems to pay attention to velocity (V). Which has dropped off a cliff: * https://fred.stlouisfed.org/series/M2V

What makes V increase? A new big investment opportunity? A savings tax? What starts money circulating?

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

#56

Post by throw0101a »

freeone3000 wrote: post #55
throw0101a wrote: post #51

Earlier quoted context omitted.

No, it is not. Inflation causes purchasing power to drop. An increased money supply is necessary, but not sufficient. You also need velocity: The equation for inflation is: M x V = P x Q Everyone talks about "printing money" (money supply: M) with the Fed, but no one seems to pay attention to velocity (V). Which has dropped off a cliff: * https://fred.stlouisfed.org/series/M2V

What makes V increase? A new big investment opportunity? A savings tax? What starts money circulating?

Economic activity:

> The velocity of money (or the velocity of circulation of money) is a measure of the number of times that the average unit of currency is used to purchase goods and services within a given time period.[3]

* https://en.wikipedia.org/wiki/Velocity_of_money

Good video by a CFA trainer:

* https://www.youtube.com/watch?v=l0mh7cCjwDU

The first 10 minutes (maybe 20) probably has the most pertinent information to this discussion, but I've found the entire video to be interesting on inflation.

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

#57

Post by chordalkeyboard »

gher-shyu3i wrote: post #54
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…

> As far as a stable society goes, low interest rates are a good sign Zero are even better. We've known for literally thousands of years that interest (usury) is parasitic, immoral, and dangerous. Islam, Judaism, and Christianity all outlaw it. Yet we continue to engage in it and wonder why we end up in mess after mess.

I disagree. The price of money across a period of time, denominated in monetary units, is the most important price in a diverse economy and setting it to zero causes all sorts of distortions. If someone can’t afford to pay interest on a debt then they should not take on the debt.

My opinion of “usury” is that it refers to loans where the interest continues to accumulate if the debt is not paid. I think this can be solved by considering the contract to be a thing that terminates at a specified price.

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

#58

Post by freeone3000 »

vbtemp wrote: post #50
ahepp wrote: post #27

Earlier quoted context omitted.

Only if the purchasing power of a dollar goes down. I know MMT is controversial, but I think of it more as a focus on empiricism. Sure, rationality suggests that printing dollars will reduce the value of dollars. But kickstarting inflation is in some ways the entire point, no? And it has remained consistently below FR targets for the past decade (I believe, I'm not an economist and I'm not looking at any charts)

Have you had to pay for medical care, child care, housing, care for elderly or disabled loved ones and/or education?? How on earth can you say that inflation has remained low??? All of those have become insanely expensive and people die all the time because they can't afford them! Just because cheap, crappy electronics and egg McMuffins don't appreciate in cost and stay crappy and cheap does NOT mean inflation is low…

But none of those things have risen at the same rate, or even comparable rates. The increase in childcare has kept up with the average wage increase, but education is hundreds of times more! I don't even know how you'd price medical care, as everyone is effectively charged differently, even for the same service. Housing doesn't track either of those -- purchasing follows literally nothing, renting follows local wage. So what's going on here?

(As a note, local wages have risen less than the government's calculation of inflation, which is primarily food and secondarily consumer goods)

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

#59

Post by lettergram »

Don’t need interest rates when they print money.

If you would like to learn more: http://anuparty.org/on-interest-slavery/

Effectively, banks can lend on margin. They put 10% down, you pay back 100% of the loan + some little interest. What does that mean? They can loan out 10x the money they have, and people pay it back in full, 10x their return. Each of those have a small bit of interest and fees. Making them a nice cushy income stream.

The FES can also just create money with a click. This devalues all the other dollars slightly, but then those funds can be shared.

Overall, this isn’t surprising.

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

#60

Post by chordalkeyboard »

sudosysgen wrote: post #31
ahepp wrote: post #25

Earlier quoted context omitted.

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.

A dollar today is worth more than a dollar tomorrow, thats why I have to give you $1.1 tomorrow in exchange for you giving me $1.0 today.
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