From Dollar Collapse:
The folks at
Gresham’s Law
just published a nifty interactive chart of real (i.e.,
inflation-adjusted) interest rates since the 1960s that explains a lot
about today’s world.
To make sense of this, let’s
start with a a little background: Interest rates are the rental cost of
money, but to figure out the true cost you have to adjust the nominal
(or numerical) interest rate for inflation, which is the rate at which
the currency being borrowed is falling in value.
If the nominal interest rate is
higher than inflation, then the real interest rate is positive. If the
real rate is both positive and high, that’s a signal that money is
expensive and that one is better off being a lender (to reap those high
returns) than a borrower (who has to pay the high true cost of money).
The opposite is true for negative real rates, where the nominal cost of
money is lower than the rate at which the currency is being depreciated.
In this case a borrower actually gets paid to borrow because the true
cost of the loan falls as the currency loses value. So negative real
rates tell market participants to borrow as much as possible.
Given these incentives one might expect the following
....MORE
Here are
the charts, based on OECD data.
