The View | Perennially low interest rates a by-product of our modern age
Some blame the central banks, but most point to the fundamentals of modern times, and the impact of ageing demographics
There are many upsides to having been born in modern times. We live longer, get to drive cars and are less likely to end up burnt at the stake, or swallowed by a whale. Moreover, if we fall ill, the doctor won’t arrive at our bedsides and order a “bleeding.”
Then there is this: interest rates are the lowest they’ve been in five millennia, as pointed out in a recent Bank of America Merrill Lynch global investment report.
It is an “astonishing history investors are living through today: lowest interest rates in 5,000 years; lowest UK base rate since 1705; a negative Japanese bond yield for the first time since 1870,” BoA Merrill Lynch’s chief investment strategist, Michael Hartnett, wrote in the report.
It is astonishing to think about, but what does it mean? Is this an end-of-history event, or will interest rates revert to historical averages? This is the big question of our times, investment wise.
Unfortunately, it’s only because nobody wants to borrow money that interest rates are at their lowest in 5,000 years (based on estimates derived from ancient IOUs and Homer). Low rates are a reflection of global deflationary dynamics, and central banks are losing that battle.
Since the Lehman Brothers bankruptcy in 2008, there have been 654 policy rate cuts, by Hartnett’s count. Central banks have expanded their collective balance sheets to US$23.4 trillion and directly purchased US$12.3 trillion of bonds and other financial assets.
