We like Chancellor.
From A Long Time In Finance, transcript via The Blind Spot, September 12:
Presented by Jonathan Ford and Neil Collins.
With Edward Chancellor.
Produced and edited by Nick Hilton for Podot.
Neil Collins 00:05
Hello and welcome to a long time in finance with Jonathan Ford and Neil Collins in partnership with briefcase dot news service that brings intelligent curation and analysis to your media monitoring.Jonathan Ford 01:17Jonathan Ford 00:22
Time is money as we like to say on this podcast.Neil Collins 00:24
Jonathan Ford 00:28
Definitely yes, and brevity is wit.
And our guest this week is someone who not only knows a great deal about the price of time, but also has an impressive sense of timing. Edward Chancellor’s first book ‘devil take the hindmost’ on financial speculation was published just before the bursting of the .com bubble in 2000. Now he’s published the price of time, a history of interest rates. Just as monetary policy around the world is tightening and threatening to tip many countries, including our own, into recession. Along with taking an entertaining tour through the highways and byways of compound interest from the time of the Babylonians, the book issues a stern warning about the dangers of loose monetary policy or setting interest rates too low. Eddie, welcome back to a long time in finance, good to have you back.Edward Chancellor 01:16
Nice to see you.
I just wanted to start in your book, you basically argue that many of the problems we have; low productivity, impossibly expensive houses, a bloated financial sector, all stem from our decision to keep interest rates too low. Perhaps you can explain how you believe you can tell they’ve been too low and how you attach all these ills to them.Edward Chancellor 01:38
When I embarked on this book, it was really because I was concerned about the state of the financial system and the economy. And I thought that you could really only understand what was going on by having a picture of what these very low-interest rates for the last decade, were actually doing. In the book, I try and look at interest across a number of different dimensions. Conventionally, the central bankers only think about the interest rate movements relative to inflation or deflation. But I argue that there are a number of other things that interest influences to start with, it affects how capital is allocated, the movement of resources, from low return investments or businesses to higher returns. But as I also pointed out with very low-interest rates, you get an incentive to invest in projects with very long-dated returns. I would argue that we’re doing that with the unicorns of Silicon Valley, many of which are just specious speculations, they are a zombie company. So there’s this misallocation of capital. But then, Jonathan, as you and I know, as particularly those of us who worked in corporate finance, at the beginning of our careers is, you know, the discount rate that one uses for valuing streams of future income has a huge impact on your current value, on what we call the net present value. So it seems to be no coincidence that the US stock market has exhibited some of the highest valuations in history, with the only exception of the peak of the .com bubble in ’99-2000.
Neil Collins 03:31
Can I just pick you up on the point that you made about low interest rates encourage speculative businesses, but surely, low-interest rates are a great incentive for taking a longer view? And that presumably, you would agree is a good thing rather than a bad thing?
Edward Chancellor 03:52
Now, I mean, Neil – it’s good point. You can take too short a view, and you can take too long a view. Too long a view is investing in in a business whose returns lie too far out in the distant future, and perhaps don’t even exist at all....
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