Visualizing The 700-Year Fall Of Interest Rates And What It Means For Today


Zero Hedge: Today’s graphic from Paul Schmelzing, visiting scholar at the Bank of England (BOE), shows how global real interest rates have experienced an average annual decline of -0.0196% (-1.96 basis points) throughout the past eight centuries.

Collecting data from across 78% of total advanced economy GDP over the time frame, Schmelzing shows that real rates* have witnessed a negative historical slope spanning back to the 1300s.

Displayed across the graph is a series of personal nominal loans made to sovereign establishments, along with their nominal loan rates. Some from the 14th century, for example, had nominal rates of 35%. By contrast, key nominal loan rates had fallen to 6% by the mid 1800s. Read More …

Opinion: Interesting how most financial experts relate what is happening in today’s markets from World War II.

In the next chart, Schmelzing shows the effect on bond prices and the decline of bond interest income …

Bond Yields Declining

According to the report, another trend has coincided with falling interest rates: declining bond yields.

Since the 1300s, global nominal bonds yields have dropped from over 14% to around 2% …

… leaving pension plans and retirees on a desperate search for lower risk income.

Defined Benefit pension plans must invest a large percentage of their assets in government bonds. Pension plans across the country are straining to pay promised benefits that are based on achieving a 7.5-8% return on investment.

With interest rates hitting near zero during the 2008-9 recession, pensions are having to reduce benefits to retirees causing tens of thousands of participants to rely on savings that may or may not be there when needed. In many cases workers who were expecting large pension checks were poor savers.

Retirees, on the other hand, are shunning bond investments due to low yields and instead are piling into equity markets leaving them exposed to risk in the event of another inevitable downturn in the markets.

Image result for when stocks do down bonds go up

Solution: The Federal Reserve and the major central banks (ECB, BOJ, BOE, SNB, BOC, RBA), discovered in 2009 that by printing new money, ignoring the debt, and buying massive amounts of bonds from banks, interest rates were/are forced down driving stock markets to stratospheric highs – making every one happy.

Problem: Any unexpected shock will find pensions and retirees with a disproportionate amount of stocks with no bonds or commodities to offset risk.

Outcome: The result is panic. Investors ride the down wave until they can’t take it anymore and sell taking gigantic losses. Rinse repeat.

What we do know is that someday the cycle will stop. Revelation 6:5-6 describes sudden  global hyperinflation that will begin a chain reaction that will last 3.5 years until a new leader emerges. When his government is complete (666), he will have complete control of every aspect of finance even buying and selling (Revelation 13:16-17.