Money For the Rest of Us

The Price of Money - 700 Years of Falling, Can Interest Rates Keep Rising?

Oct 25, 2023

Explore the historical forces driving the 700-year trend of falling interest rates. Discover how lower rates have boosted household net worth and reduced financial vulnerability. Dive into the factors behind the recent interest rate spike and the shift in marginal buyers. Learn about strategies to take advantage of higher yields without major risks.

24:38

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Quick takeaways

Higher interest rates can put households in a more precarious financial situation.

Factors such as economic development, increased savings, and longer life expectancies have contributed to the long-term downward trend of interest rates.

Deep dives

The impact of rising interest rates on households

Rising interest rates, such as an 8% 30-year fixed rate mortgage, can put households in a more precarious financial situation. Lower rates in recent years have helped household finances by increasing net worth and reducing debt balances. However, if rates continue to rise, it may be more difficult for borrowers to service their debt, impacting affordability for mortgages and other loans.

Introduction

3min

Understanding the Natural Rate of Interest and the Price of Money

3min

The Supply and Demand for Money and the Factors Affecting Interest Rates

3min

Factors Affecting Interest Rates and the Shift in Marginal Buyers

4min

Factors Influencing Real Rates of Interest

7min

The Long-Term Downward Trend in Interest Rates

4min

Exploring Options for Locking in Higher Yields Without Significant Risks

4min

Interest rates have been sliding for seven centuries. Dive into the historical forces driving this trend and examine whether the recent interest rate spike is just a blip on the radar.

Topics covered include:

How the supply of savings and the demand to borrow impact interest rates
Why have interest rates been falling for over 700 years, and what might have changed recently to propel rates higher
How lower rates have helped households increase their net worth and reduce their financial vulnerability
What are some lower-risk ways to take advantage of higher interest rates

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Show Notes

The Price of Money Is Going Up, and It’s Not Because of the Fed by Jamie Rush, Martin Ademmer, Maeva Cousin, Tom Orlik, and Rich Miller—Bloomberg

Secular stagnation is not over by Olivier Blanchard—Peterson Institute for International Economics

A big problem looming for bond markets by TOMASZ WIELADEK—The Financial Times

Eight centuries of global real interest rates - Paul Schmelzing - Bank of England

Changes in U.S. Family Finances from 2019 to 2022—The Federal Reserve

A Complete Guide to Investing in I Bonds and TIPS

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448: Where Are Interest Rates Headed Next? Insights from the Jackson Hole Symposium