from the article one might conclude the rate is "naturally" 20%, and on artificially inflated environments (eg Roman empire, big wars' aftermath) it gets lower than 2%
The "natural" interest rate is whatever rational people expect the risk to be, plus whatever profits they can add on top of that without losing too much business to a competitor.
In societies without good statistics and calculators, that could just as well have been 10% risk + 10% profits, or some other combination of round numbers. If you're unsure what the exact numbers are, better err on the side of making more money.
Better information, more efficient markets, and computers can make calculations more precise, so I don't think there's any more need to use round numbers anymore, even without government intervention.
Putting your money in someone else's hands was probably a lot riskier in those days, and that is priced into the interest rate. If there's a real chance a passing army or crooked king might walk in and take your money, you need to be better compensated.
I would guess the opposite, society needed a much larger share of its workforce for basic necessity. So assuming that the different opportunities to build something were similar, only a smaller fraction of the possibilities got actually build and this fraction had the highest return of investment. So expected ROI was a lot higher and therefore the creditors could ask for a lot more interest.
Whether you keep all your money in your own house or lend it to your neighbors doesn't make a difference if a passing army can pillage and burn everything in your town.
What's different is that the modern legal apparatus make it much easier for you to track down someone who defaults on a loan and force them to pay you back. Just petition a magistrate, and he can magically transfer a portion of your debtors' income to your vault every month no matter where they live!
the generation of americans that were in their earning prime years during the late 70s and the 80s were the lucky ones...and their kids are lucky, too. Those earners in that time frame were able to stash their earnings into nearly risk-free certificates, which over the years increased and doubled and doubled again. And now their children are inheriting that money.
We may never see the like of that financial boon again, at least not here in america.
Economic growth here in america now depends on population growth. And since americans are not having many children, the establishment is looking to bring in people from outside in order to obtain growth. However, some americans don't want this. It is the establishment vs the american majority on whether america will return to growth via population importation or whether we will go the way of japan. This is the new war.
Yea, the inflation in the 70's really affected my adult life. I remember saving up for a toy, and going to the store and it went up in price. I didn't understand, but later in life I found myself buying stuff I might need just because it was a good price.
I got some money in the 90's and was going to buy a Harley. I was going to ride across the United States. I kept telling myself, the minute I really see inflation kicking in, I'll buy the bike. Well, I never bought the bike, but it wasen't because of inflation.
We are in the midst of a financial boom today: The great exodus of the upper working class from the suburbs back into tier-1 city cores. I don't know what will prove to be the best way to capitalize on this shift, but here's my guess:
Use today's low rates to get a mortgage for a property downtown in a place like Seattle. Be wise and purchase an easily partionable property that can be partially rented out to cover the mortgage and you're golden.
If Seattle is out of your price range, Houston is a great starter city. Low prices, near the coast, growing state, etc.
If you took $1 in year zero, and invested it in an interest-bearing instrument which yielded 2% annually, you would have $213,474,546,813,934,272 today. This does not take inflation into account :).
No interest-paying instrument survived that long. It almost makes you think that period devaluations are a must-have.
I think you missed the section in Algebra where they teach the time value of money. Nobody is going to give up money today for the same amount at a future date.
Depends on if it is possible to lose that money in the mean time. If there are lots of robbers in your neighborhood, it might make sense not to have a lot of cash under your mattress.
I could have started at -1, -2, or 5 to illustrate the point. It's the order of magnitude that is interesting, not the nitpicking of when we should start counting years.
Now let's apply the same result to demographics: Suppose there was a small clan in the year zero and their culture and technology allowed their population to grow at an average annual rate of 2%. Then the earth would be overpopulated long ago.
Suddenly many of the bad things we are trying so hard to prevent seems not so bad anymore: disease, war, hunger and restrictions on immigration.
Say the initial clan consisted of 25 couples, aged 1, 2, 3, ... to 25 years old. And people die after 25 years. And each couple between 18 and 25 years have one baby per year. Then the population will quadruple in less than 25 years. That's more than 5% population growth.
So, people dying of old age does not limit population growth rate to less than 2%.
35 comments
[ 3.4 ms ] story [ 76.5 ms ] threadIn societies without good statistics and calculators, that could just as well have been 10% risk + 10% profits, or some other combination of round numbers. If you're unsure what the exact numbers are, better err on the side of making more money.
Better information, more efficient markets, and computers can make calculations more precise, so I don't think there's any more need to use round numbers anymore, even without government intervention.
Leave it to my heirs? 5,000 years of inheritance tax would be interesting.
What's different is that the modern legal apparatus make it much easier for you to track down someone who defaults on a loan and force them to pay you back. Just petition a magistrate, and he can magically transfer a portion of your debtors' income to your vault every month no matter where they live!
Read this instead.
[http://www.amazon.com/Debt-The-First-000-Years/dp/1612191290]
We may never see the like of that financial boon again, at least not here in america.
Economic growth here in america now depends on population growth. And since americans are not having many children, the establishment is looking to bring in people from outside in order to obtain growth. However, some americans don't want this. It is the establishment vs the american majority on whether america will return to growth via population importation or whether we will go the way of japan. This is the new war.
I got some money in the 90's and was going to buy a Harley. I was going to ride across the United States. I kept telling myself, the minute I really see inflation kicking in, I'll buy the bike. Well, I never bought the bike, but it wasen't because of inflation.
Use today's low rates to get a mortgage for a property downtown in a place like Seattle. Be wise and purchase an easily partionable property that can be partially rented out to cover the mortgage and you're golden.
If Seattle is out of your price range, Houston is a great starter city. Low prices, near the coast, growing state, etc.
If you took $1 in year zero, and invested it in an interest-bearing instrument which yielded 2% annually, you would have $213,474,546,813,934,272 today. This does not take inflation into account :).
No interest-paying instrument survived that long. It almost makes you think that period devaluations are a must-have.
That's only assuming zero risk. An investment with risk so low to survive two millennia can safely yield 0%.
>An investment with risk so low to survive two millennia can safely yield 0%.
If risk-free assets garnered 0% interest rates, then the U.S. Treasury would not have to pay a real rate of return on its debt.
https://en.wikipedia.org/wiki/0_(year)
In reality if you have a 2% yielding bond taken out in year zero you'd have $40.30 of accrued interest plus the $1 principal of the bond.
Suddenly many of the bad things we are trying so hard to prevent seems not so bad anymore: disease, war, hunger and restrictions on immigration.
So, people dying of old age does not limit population growth rate to less than 2%.
To put it another way: On a long enough timeline the survival rate for everyone [or any investment] drops to zero.