Spud really is a one.
I noted in a video recently that if the Bank of England was setting interest rates now in accordance with long-term trends, then the real interest rate (i.e. the interest rate less the inflation rate) should be as close to zero as makes no difference.
Hew uses this Bank of England paper to reach this conclusion.
As the trend line in that chart shows, we have now reached the point where net real interest rates should be zero, and there is no excuse for them to be anything else. Essentially, the risk in money lending has gone in a system where the return of funds is guaranteed by the central bank. Nothing more than a return that maintains the value if the money is deposited is required in that case. After all, why else are government guarantees on bank deposits provided if it isn’t to eliminate risk and so keep rates as low as possible?
Hmm. The actual paper itself says:
The data here suggests that the “historically implied” safe asset provider long-term real rate stands at
1.56% for the year 2018, which would imply that against the backdrop of inflation targets at 2%, nominal
advanced economy rates may no longer rise sustainably above 3.5%.
So, Spud cannot read a paper.
What’s much more fun though is that Spud really, really, cannot read a paper. For what the paper is really trying to point out is:
Together, I posit that the private and public assets covered in the following also go some way in
enabling the reconstruction of total “nonhuman” wealth returns since the 14th century. Prior to the
recording of robust public statistics, wills and tax assessments suggest that around one-third of private
wealth is tied to public and private debt assets, with another third in real estate – in an environment where
wealth-income ratios may plausibly have reached 150-250% of GDP. Aggregating such evidence, and
constructing plausible long-run R-G series over the last 700 years, suggests that real returns on nonhuman
wealth are equally downward trending over time. They are by no means “virtually stable”, a cornerstone
of Piketty’s (2014) framework. In fact, if historical trends are extrapolated, R-G will soon reach
permanently negative territory – a first since at least medieval times.
Piketty’s full of shit and no, we do not have to tax the rich merely because they’re rich.
Ho, Hum.