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The Price of Time
The first book of the next crisis.*Winner of the 2023 Hayek Book Prize**Longlisted for the 2022 Financial Times Business Book of the Year Award*All economic and financial activities take place across time. Interest coordinates these activities. The story of capitalism is thus the story of the price that individuals, companies and nations pay to borrow money.In The Price of Time, Edward Chancellor traces the history of interest from its origins in ancient Mesopotamia, through debates about usury in Restoration Britain and John Law ' s ill-fated Mississippi scheme, to the global credit booms of the twenty-first century. We generally assume that high interest rates are harmful, but Chancellor argues that, whenever money is too easy, financial markets become unstable. He takes the story to the present day, when interest rates have sunk lower than at any time in the five millennia since they were first recorded - including the extraordinary appearance of negative rates in Europe and Japan - and highlights how this has contributed to profound economic insecurity and financial fragility.Chancellor reveals how extremely low interest rates not only create asset price inflation but are also largely responsible for weak economic growth, rising inequality, zombie companies, elevated debt levels and the pensions crises that have afflicted the West in recent years - conditions under which economies cannot possibly thrive. At the same time, easy money in China has inflated an epic real estate bubble, accompanied by the greatest credit and investment boom in history. As the global financial system edges closer to yet another crisis, Chancellor shows that only by understanding interest can we hope to face the challenges ahead.
432 pages, Hardcover
First published August 16, 2022
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August 23, 2022
Useful read. Greatly improved my capacity to be boring at parties.
August 24, 2022
The Price of Time, in the best case, is a misnomer. The book is not a story of interest rates despite the occasional attempts to weave them into the narrative. Its first part provides summaries of a few most celebrated historic bubbles, followed by a long, unstructured diatribe on the state of current markets, economic structures, and policy frameworks.
There is nothing wrong with these topics. The author's attempts fall short because of how the content appears manipulated, like the title of the book, to emphasize his discomfort with the way things are. The author is right in pointing out numerous current ills from the extreme and rising inequality to market valuations, corporate abuses and policy adventurism, real-life reflexivities of financial events and externalities including climate damage, etc.
The author is not alone in listing these issues. These topics are covered continuously by a rising horde in a far more effective manner almost daily in books and journals. This book has little primary research. Worse, its reliance on the points made by others is so inconsistent that the arguments often lose credibility.
For instance, the author would lament the lack of creative destruction in one paragraph but have long sections on individual companies that go bust. He would appear to favor the Austrian school of thought and Hayek, but still, have digs at Greenspan's connections with Ayn Rand or the regulatory failures in controlling the powers of today's giants in some other sections.
The inconsistencies are worse when the author discusses two sides of any interest rate level. The book would criticize how low rates hurt the pensioners relying on interest income, but mind savers benefiting from rising wealth levels of financial instruments. The author never realizes how much the two groups overlap and why retirees worldwide have not gone up in arms against low-interest rates decades later. Take another argument in the same vein: the author would criticize low-interest rates for luring students and consumers of all types to borrow but would still want funding available to these groups all the time for the betterment of the masses.
Once again, the conclusions are not wrong. The problem is the ad hocism in the arguments used to support them. It is ok to use quotes from both Marx and Smith or Keynes and Mises to point out any unsustainability, but when it happens too often, it all begins to jangle. For example, the author does not like central banks because of their lack of policy framework. He seems to believe in the Austrian worldview that argues against fiat money, seen as the leading cause of the boom-bust cycle in the prices of financial assets and possibly also real-life goods/services. The book does not like cryptocurrencies, though - and for all the right reasons. Somehow, the author sees a solution in government-issued digital currencies...go figure!
The damage because of the lack of consistent argument framework is most when the author has to turn prescriptive. Mercifully, the book has little to offer on alternatives, although there is a section full of platitudes at the end.
A final word: History provides hardly any examples of economic successes without attendant financial/property market boom-busts, a point that goes unacknowledged. Every bubble-bust-prone system has not progressed consistently over the long term, but it is difficult to think of any society that has grown well over decades without boom-bust cycles. Unfortunately, perhaps.
There is nothing wrong with these topics. The author's attempts fall short because of how the content appears manipulated, like the title of the book, to emphasize his discomfort with the way things are. The author is right in pointing out numerous current ills from the extreme and rising inequality to market valuations, corporate abuses and policy adventurism, real-life reflexivities of financial events and externalities including climate damage, etc.
The author is not alone in listing these issues. These topics are covered continuously by a rising horde in a far more effective manner almost daily in books and journals. This book has little primary research. Worse, its reliance on the points made by others is so inconsistent that the arguments often lose credibility.
For instance, the author would lament the lack of creative destruction in one paragraph but have long sections on individual companies that go bust. He would appear to favor the Austrian school of thought and Hayek, but still, have digs at Greenspan's connections with Ayn Rand or the regulatory failures in controlling the powers of today's giants in some other sections.
The inconsistencies are worse when the author discusses two sides of any interest rate level. The book would criticize how low rates hurt the pensioners relying on interest income, but mind savers benefiting from rising wealth levels of financial instruments. The author never realizes how much the two groups overlap and why retirees worldwide have not gone up in arms against low-interest rates decades later. Take another argument in the same vein: the author would criticize low-interest rates for luring students and consumers of all types to borrow but would still want funding available to these groups all the time for the betterment of the masses.
Once again, the conclusions are not wrong. The problem is the ad hocism in the arguments used to support them. It is ok to use quotes from both Marx and Smith or Keynes and Mises to point out any unsustainability, but when it happens too often, it all begins to jangle. For example, the author does not like central banks because of their lack of policy framework. He seems to believe in the Austrian worldview that argues against fiat money, seen as the leading cause of the boom-bust cycle in the prices of financial assets and possibly also real-life goods/services. The book does not like cryptocurrencies, though - and for all the right reasons. Somehow, the author sees a solution in government-issued digital currencies...go figure!
The damage because of the lack of consistent argument framework is most when the author has to turn prescriptive. Mercifully, the book has little to offer on alternatives, although there is a section full of platitudes at the end.
A final word: History provides hardly any examples of economic successes without attendant financial/property market boom-busts, a point that goes unacknowledged. Every bubble-bust-prone system has not progressed consistently over the long term, but it is difficult to think of any society that has grown well over decades without boom-bust cycles. Unfortunately, perhaps.
October 24, 2024
If the last chapter had been the first chapter I probably would not have finished reading this book – which would have been a pity, as I have learnt things from this one. The problem is that the author is a neoliberal, and so that has an impact on what he has to say here. And if I’d known that earlier I would have read the book with that in mind. But he leaves all that right until the end.
Ages ago I read that interest rates are directly related to how confident we are in the future. If I borrow $100 today and the interest rate is 10% a year, then I need to be sure that whatever I’m using that money to buy will be worth $110 next year to me – and probably more – or it doesn’t make much sense as an investment to borrow the money. There is a kind of optimism that the future will be better than the present to justify borrowing money at that rate of interest. So, interest and time are related.
The cost of money provides signals to investors about what is a good and what is a bad investment. If you can make a reasonable return by just leaving your money in the bank, then leaving your money in the bank and drawing compound interest is a good strategy. In fact, it is a very good strategy. Compound interest is money seemingly created out of thin air. It is why superannuation works.
But if interest rates are too low, as he says repeatedly throughout this, if interest is 2% or less, money goes looking for better yields. And these are increasingly risky. As he also points out, not only risky, but they also tend to be in new technology as well and that this has been true for virtually the whole time capitalism has been around. When interest rates are low people invest in risky new tech – like train-lines or electric cars. As he points out, Tesla is just such an investment. It is so overvalued that it is worth more than much larger car manufacturers, but it seems unlikely to ever catch up with them in production and so it is an example of money chasing yield it is unlikely to ever achieve. He also talks of artworks that seem impossibly over-valued – such as that sculpture that didn’t really exist that sold for multiple millions. The ultimate in the king’s new clothes.
He attributes all this to what happened to interest rates after the GFC. Essentially, interest rates went to zero, and then reserve banks started quantitative easing – sending interest rates negative. This meant there were no real price signals for the value of money (or of time) and so people went nuts putting their money into the most risky of investments. Without proper price signals the market can’t operate and risk becomes meaningless. Yield is all, and without proper signals on the value of money (and time) people think any yield is worth chasing after.
As you can see, he is very much in the neoliberal camp with all of this – planning is impossible, state intervention distorts market mechanisms, debasing currency debases society and undermines democracy. State intervention begets more intervention until the whole system of the economy is corrupted. His solution is to force interest rates to be above 2% and if this means certain corporations and even countries need to fail, so be it. The market will prevail. Such absolute free market ideology is impossible to sustain – all markets are ultimately political – and so this ideology can never fail either, since it will never be ‘fully implemented’ – not even by Reagan or Thatcher. You can talk all you want about the ‘road to serfdom’ – but if your ideology is unimplementable, you can never be proven wrong either.
I would like to read a critique of this book by someone like Ha-Joon Chang, someone with a better grasp of the follies of neoliberalism than I have. Still, I came away from this one with a better grasp of the relationship between interest rates and time – so, not a complete waste of time. I’ve just noticed this book was the Winner of the 2023 Hayek Book Prize – I was lucky I didn’t see that before I started reading, as I said at the start of this review.
Ages ago I read that interest rates are directly related to how confident we are in the future. If I borrow $100 today and the interest rate is 10% a year, then I need to be sure that whatever I’m using that money to buy will be worth $110 next year to me – and probably more – or it doesn’t make much sense as an investment to borrow the money. There is a kind of optimism that the future will be better than the present to justify borrowing money at that rate of interest. So, interest and time are related.
The cost of money provides signals to investors about what is a good and what is a bad investment. If you can make a reasonable return by just leaving your money in the bank, then leaving your money in the bank and drawing compound interest is a good strategy. In fact, it is a very good strategy. Compound interest is money seemingly created out of thin air. It is why superannuation works.
But if interest rates are too low, as he says repeatedly throughout this, if interest is 2% or less, money goes looking for better yields. And these are increasingly risky. As he also points out, not only risky, but they also tend to be in new technology as well and that this has been true for virtually the whole time capitalism has been around. When interest rates are low people invest in risky new tech – like train-lines or electric cars. As he points out, Tesla is just such an investment. It is so overvalued that it is worth more than much larger car manufacturers, but it seems unlikely to ever catch up with them in production and so it is an example of money chasing yield it is unlikely to ever achieve. He also talks of artworks that seem impossibly over-valued – such as that sculpture that didn’t really exist that sold for multiple millions. The ultimate in the king’s new clothes.
He attributes all this to what happened to interest rates after the GFC. Essentially, interest rates went to zero, and then reserve banks started quantitative easing – sending interest rates negative. This meant there were no real price signals for the value of money (or of time) and so people went nuts putting their money into the most risky of investments. Without proper price signals the market can’t operate and risk becomes meaningless. Yield is all, and without proper signals on the value of money (and time) people think any yield is worth chasing after.
As you can see, he is very much in the neoliberal camp with all of this – planning is impossible, state intervention distorts market mechanisms, debasing currency debases society and undermines democracy. State intervention begets more intervention until the whole system of the economy is corrupted. His solution is to force interest rates to be above 2% and if this means certain corporations and even countries need to fail, so be it. The market will prevail. Such absolute free market ideology is impossible to sustain – all markets are ultimately political – and so this ideology can never fail either, since it will never be ‘fully implemented’ – not even by Reagan or Thatcher. You can talk all you want about the ‘road to serfdom’ – but if your ideology is unimplementable, you can never be proven wrong either.
I would like to read a critique of this book by someone like Ha-Joon Chang, someone with a better grasp of the follies of neoliberalism than I have. Still, I came away from this one with a better grasp of the relationship between interest rates and time – so, not a complete waste of time. I’ve just noticed this book was the Winner of the 2023 Hayek Book Prize – I was lucky I didn’t see that before I started reading, as I said at the start of this review.
July 25, 2022
I finished this book on audio and went straight to my favorite internet book shop (adlibris, not amazon) to buy it in hard back. I will write a more complete review when I have re-read it. Needless to say, I found this absolutely fascinating.
The author takes us to the beginning of time, well, to the beginning of the history of interest. The interest was invented before money came into use. If you borrowed grain, you had to pay back with more grain. Interest is the price for the pain of possibly losing the lent money - or grain. It shouldn't be 0 or negative, that is a modern construction that bodes ill for the future. It floods the markets with poor investments, because the hunt for pay-back leads to risky investments. The zero interest is also what has caused the collapse of the old pension system. We've all been screwed over. Market unrest always follows a period of low interest.
This is one of the best financial books I've ever read and it gives astute insight into the world we live in today - and how we got into this mess. I can't wait to read it again!
The author takes us to the beginning of time, well, to the beginning of the history of interest. The interest was invented before money came into use. If you borrowed grain, you had to pay back with more grain. Interest is the price for the pain of possibly losing the lent money - or grain. It shouldn't be 0 or negative, that is a modern construction that bodes ill for the future. It floods the markets with poor investments, because the hunt for pay-back leads to risky investments. The zero interest is also what has caused the collapse of the old pension system. We've all been screwed over. Market unrest always follows a period of low interest.
This is one of the best financial books I've ever read and it gives astute insight into the world we live in today - and how we got into this mess. I can't wait to read it again!
November 7, 2023
Excellent book.
One important revelation: when interest rates get too low investors become restless. They are looking for an investment vehicle that will have a larger return. This is how some got involved in crypto speculation.
https://www.mauldineconomics.com/fron...
https://www.midlandbookshop.com/en/pr...
This is how we ended up with Bank-Man and the crypto disaster.
When I was covering Silicon Valley, i wrote a book titled "The Internet bubble," an international bestseller. But the suckers like to say "it's different this time."
One important revelation: when interest rates get too low investors become restless. They are looking for an investment vehicle that will have a larger return. This is how some got involved in crypto speculation.
https://www.mauldineconomics.com/fron...
https://www.midlandbookshop.com/en/pr...
This is how we ended up with Bank-Man and the crypto disaster.
When I was covering Silicon Valley, i wrote a book titled "The Internet bubble," an international bestseller. But the suckers like to say "it's different this time."
December 11, 2022
To be honest, I have mixed feelings regarding this book. Certainly, it doesn’t deserve such raving reviews it got because its quality and readability are very uneven. Nonetheless, it brought very interesting discussions and has an extensive bibliography if the reader desires to go deeper into the many topics it mentions.
The first half of the book starts strong by discussing the origins of interest at the dawn of western civilization in the Middle East: its various forms, its justifications throughout time and how it was linked with productive endeavors and religions to an extensive degree. Then it goes on to explore the role of interest during the Renaissance and the Modern Period, peppered with good anecdotes and biographies of financiers, merchants and economic thinkers. Finally, it explores the increasingly formal explanations around the role of monetary policy, a movement linked with the formalization of economics as a field of study. This is where the book really shines, in my view, as Chancellor is very capable of simplifying economic theories, presenting different views all the while keeping everything engaging. The chapters dealing with the late XIX up until the Great Depression, when the Gold Standard reigned and the likes of Wicksell, Keynes and Hayek were debating, are masterful.
Thereafter, the book takes a nosedive: as the chapters approach the present, the author increasingly relies on a barrage of quotes, citations and statements to make his points. Out of the window are the careful explanation and contrast of ideas that characterized the first half. Starting with the aftermath of the Volcker shock, the book gets increasingly disjointed with name dropping and repetition, a tool to try and convince the reader by exhaustion. Additionally, Chancellor attributes almost every identifiable economic malaise to recent monetary policy. While he raises some good questions, these sounds as a gross simplification for many complex problems, reasons other than artificially low interest rates barely getting a mention, if any. One is tempted to remember the quote about how someone armed only with a hammer sees the world.
I recommend this book for those interested in economic history and that want to have a nice overview of the evolution of monetary theory. This is specially so if you are familiar with macroeconomics and would like an extensive bibliography that explores the effects of interest rates on a multitude of themes. However, I would caution against getting your hopes as high as the cover reviews prompt you to.
The first half of the book starts strong by discussing the origins of interest at the dawn of western civilization in the Middle East: its various forms, its justifications throughout time and how it was linked with productive endeavors and religions to an extensive degree. Then it goes on to explore the role of interest during the Renaissance and the Modern Period, peppered with good anecdotes and biographies of financiers, merchants and economic thinkers. Finally, it explores the increasingly formal explanations around the role of monetary policy, a movement linked with the formalization of economics as a field of study. This is where the book really shines, in my view, as Chancellor is very capable of simplifying economic theories, presenting different views all the while keeping everything engaging. The chapters dealing with the late XIX up until the Great Depression, when the Gold Standard reigned and the likes of Wicksell, Keynes and Hayek were debating, are masterful.
Thereafter, the book takes a nosedive: as the chapters approach the present, the author increasingly relies on a barrage of quotes, citations and statements to make his points. Out of the window are the careful explanation and contrast of ideas that characterized the first half. Starting with the aftermath of the Volcker shock, the book gets increasingly disjointed with name dropping and repetition, a tool to try and convince the reader by exhaustion. Additionally, Chancellor attributes almost every identifiable economic malaise to recent monetary policy. While he raises some good questions, these sounds as a gross simplification for many complex problems, reasons other than artificially low interest rates barely getting a mention, if any. One is tempted to remember the quote about how someone armed only with a hammer sees the world.
I recommend this book for those interested in economic history and that want to have a nice overview of the evolution of monetary theory. This is specially so if you are familiar with macroeconomics and would like an extensive bibliography that explores the effects of interest rates on a multitude of themes. However, I would caution against getting your hopes as high as the cover reviews prompt you to.
March 21, 2023
This book started out well. The first half walks through a relatively chronological look at use of debt and interest through history.
Arriving at present times, one of the first chapters is a diatribe against stock buybacks. I can’t tell if the author is ignorant of the practice, or biased into oblivion, but in either case this chapter is appalling. As Buffett said in his 2023 Berkshire Hathaway shareholder letter, "When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).”
Next up, when lumping FAANG stocks into “speculative tech”, the author lists them as: Facebook, Apple, Amazon, NETSCAPE, and Google. How am I supposed to take this seriously when the author substitutes Netscape for Netflix? Additionally, assuming we’re discussing *real* FAANGs, these companies are not tulip bulbs, or NFTs - they’re cash generating machines. Implying that they’re propped up like the Chinese real estate market is disingenuous.
On the whole, this book is a collection of scattershot ideas, jaded political biases, questionable information, and underappreciated historical insights. At a little over half way through, I was asking myself, “Is it worth my time to finish this when I can’t trust basic facts, and the author clearly has a political agenda?” Now having finished the book, I wish I had trusted my gut.
Arriving at present times, one of the first chapters is a diatribe against stock buybacks. I can’t tell if the author is ignorant of the practice, or biased into oblivion, but in either case this chapter is appalling. As Buffett said in his 2023 Berkshire Hathaway shareholder letter, "When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).”
Next up, when lumping FAANG stocks into “speculative tech”, the author lists them as: Facebook, Apple, Amazon, NETSCAPE, and Google. How am I supposed to take this seriously when the author substitutes Netscape for Netflix? Additionally, assuming we’re discussing *real* FAANGs, these companies are not tulip bulbs, or NFTs - they’re cash generating machines. Implying that they’re propped up like the Chinese real estate market is disingenuous.
On the whole, this book is a collection of scattershot ideas, jaded political biases, questionable information, and underappreciated historical insights. At a little over half way through, I was asking myself, “Is it worth my time to finish this when I can’t trust basic facts, and the author clearly has a political agenda?” Now having finished the book, I wish I had trusted my gut.
November 20, 2023
I haven't been this conflicted on a book in, well, forever, really. It got to the point I had to re-read the whole thing to write this review - so make of it what you will.
So first of - the Kindle edition is simply broken, don't buy it. The footnotes are missing (all of them, they're just not in the book - and it's really painfull, I wanted to follow up on a lot of stuff), chapter navigation doesn't work, quite a few spelling mistakes, I found a repeat paragraph and Netscape is definitely not part of FAANG.
Now, I really enjoyed the first half of the book, which mostly covered the history of interest rates (after a criminally boring first chapter about interest in the ancient world). It filled a lot of gaps for me about the 17-19th century, its kind of unfortunate we sprinted through the 20th though, with just briefly touching up on selected topics. I recently read Jacob Goldsteins Money and it was very illuminating to read about the same events (John Law, Great Depression, Eurozone crisis) from a different perspective. I actually learned a lot - the author does a great job promoting the Austrian school of economics and thinkers outside the mainstream like Borio or McKinnon.
So that's the good part, but after that the book devolves into loosely blaming all ills of the financial world - M&A industry monopolization, PE raiders, zombie companies, wealth inequality, unicorns, financial bubbles - on central banks and low interest rates. The thing is - I actually believe the premise is correct, but the argumentation is so one sided, based on cherry picked anecdotes, that it feels like reading zerohedge, and at times borders on conspiracy theory territory level. Its entartaining but it's not rigorous analysis. I don't want to argue with the book on specific points - but quite a few are contentious.
There is a lot to like here - critique of price stability mandates, eye-opening comparison of 'secular stagnation' calls being made during both the GD and GR - all great stuff. And if you're new to this topic you will love the rest of the book and be easily convinced to what the author is selling - but there is more to the topic, everything is always more complicated than it seems and simple answers are usually the wrong ones.
So first of - the Kindle edition is simply broken, don't buy it. The footnotes are missing (all of them, they're just not in the book - and it's really painfull, I wanted to follow up on a lot of stuff), chapter navigation doesn't work, quite a few spelling mistakes, I found a repeat paragraph and Netscape is definitely not part of FAANG.
Now, I really enjoyed the first half of the book, which mostly covered the history of interest rates (after a criminally boring first chapter about interest in the ancient world). It filled a lot of gaps for me about the 17-19th century, its kind of unfortunate we sprinted through the 20th though, with just briefly touching up on selected topics. I recently read Jacob Goldsteins Money and it was very illuminating to read about the same events (John Law, Great Depression, Eurozone crisis) from a different perspective. I actually learned a lot - the author does a great job promoting the Austrian school of economics and thinkers outside the mainstream like Borio or McKinnon.
So that's the good part, but after that the book devolves into loosely blaming all ills of the financial world - M&A industry monopolization, PE raiders, zombie companies, wealth inequality, unicorns, financial bubbles - on central banks and low interest rates. The thing is - I actually believe the premise is correct, but the argumentation is so one sided, based on cherry picked anecdotes, that it feels like reading zerohedge, and at times borders on conspiracy theory territory level. Its entartaining but it's not rigorous analysis. I don't want to argue with the book on specific points - but quite a few are contentious.
There is a lot to like here - critique of price stability mandates, eye-opening comparison of 'secular stagnation' calls being made during both the GD and GR - all great stuff. And if you're new to this topic you will love the rest of the book and be easily convinced to what the author is selling - but there is more to the topic, everything is always more complicated than it seems and simple answers are usually the wrong ones.
August 16, 2022
So this book was straight-up amazing and I learned so much. However. I do have notes, and they mainly amount to Chancellor’s unquestioning faith in the fact that ‘growth must and should continue’ and that the uninterrogated concept of ‘productivity’ is the most important outcome measure of any economy. He attacks Piketty’s assumption of exponential return on capital, but seemed to miss Piketty’s wider point that the growth of the Industrial Revolution and post-world wars was abnormal in human history, and likely to soon return to its millennia-long baseline of less than 1% annually.
It did help me contextualise a lot of what I read that was written closer to things like the 1929 crash or the era of stagflation. For example, Keynes’ theory was that interest rates should be kept super low and this would result in wealth redistribution and social improvement. Instead, as Chancellor masterfully demonstrates, the ultra-low interest rates of the twenty-first century have resulted in: a grossly inflated wealth gap, redistribution to the 1% only, share buy-backs instead of investment, and overall a bad scene for anyone who’s not in the yacht class. Which, to give Keynes his due, was not necessarily the inevitable outcome, particularly if post-2008 the central banks had more closely followed Bagehot’s advice. (Bagehot wanted central banks to freely lend in a crisis, BUT at penal rates, against high quality collateral – a short term liquidity fix, in other words, that got you out of a hole but you didn’t want to continue for a second longer than necessary. Our banks have had it for over ten years now.)
I enjoyed the chronological approach to discussing interest rates, because Chancellor has the benefit of this century’s experience to be more balanced on the topic of ‘usury’ than Galbraith or Keynes or Locke. He quotes Irving Fisher explaining interest rates as a way of translating the future into the present, to reflect society’s overall time preference. He talks about the ‘natural’ rate in a much-needed critical fashion, ie: does it even exist? And beware that it is used in these econometric models if it does, in the same way economists think these models map directly on to real life. (Nope.) Bagehot thought interest rates were a barometer of trust, which is why, when they’re low, recklessness goes up with the easy money.
Chancellor then talks about Hayek (must add him to the TBR). Hayek didn’t think central bankers should stabilise prices, because this would lead to rapid technological development and a commodity glut. Stabilisation excessively stimulates output, which then drops as prices fall because there’s too much stuff made. We move on then to Goodhart’s law: when a measure becomes a target, it ceases to be a good measure (helloooooo, healthcare systems).
‘But factors that aren’t easily measured tend to get overlooked. As a result, the use of targets is
associated with a variety of adverse outcomes, including short-termism, the diversion of resources into
bureaucracy, risk aversion, unjustified rewards, and the undermining of institutional culture.’
‘Historian Jerry Muller adds a corollary to Campbell’s Law, namely: ‘anything that can be measured and
rewarded will be gamed.’’
He discusses the history of monetarism starting with the Louvre Accords of 1987 and summarises the US stagflation and the Japan bubble. In reality, he concludes, low interest rates fed demand for credit and fostered financial innovations like CDUs that increased supply. This was because you could get no yield on interest from government debt (bonds), so you had to find it elsewhere. In speculation.
Then, international credit was fragile because the US dollar is the global reserve economy. The Fed went for ultra-low interest rates, leading to a global credit boom. Other countries who kept their rates high saw huge capital flows seeking better returns. The Fed under Bernanke did not feel it was their responsibility to manage this.
‘The wealthiest homeowners pay the lowest mortgage rates ... There are two ways to interpret this relationship.
The first is to consider that the neediest borrowers are also the riskiest ... The second is to consider that the
neediest borrowers can be squeezed the hardest.’
By contrast, Borio feels that the largest influence on interest rates is monetary policy – not savings, investments, or demographics. Stable prices do not reliably reflect the ‘natural’ interest rate. Long term interest rates are strongly influenced by central banks rather than the market.
‘Amid all the heated commentary about greedy bankers and their ‘toxic’ securities, it is easy to overlook the fact
that subprime securities originally attracted investors because they enhanced income at a time when US interest
rates had fallen to historically low levels. Uncle Sam can stand many things, but he can’t stand 1 per cent.’
Key point.
In discussing 1929, I feel I start diverging ideologically from where Chancellor lands. He says the Great Depression propelled productivity and that recessions are ‘pit stops’ for increased efficiency; the ‘cleansing effect’ of businesses failing. And people dying and having an awful time, he doesn’t say. It did help me understand what happened in Europe post-2008, though; bad loans were just rolled over instead of taken off the books, and the low interest rates stopped ‘zombies’ from going into bankruptcy and in fact defaults on junk bonds dropped. Chancellor mentions that construction is a common ‘malinvestment’ seen when too much money is floating around, but he never clarifies what construction. I think this is important; ghost estates are a bad scene, but public works? Roads and railways? They’re an investment in the country’s future. I can’t call that ‘mal’ investment. I’m just not sure that’s what he means.
‘Schumpeter shared Hayek’s fears for the future. The bulk of the population, he thought, took improvements in
the standard of living for granted while resenting the insecurity produced by capitalism.’
… fair.
‘Good inequality fosters economic growth by providing incentives for people to improve their lot, whereas bad
inequality benefits a particular class (rent-seekers). Good inequality grows the economic pie, whereas bad
inequality is associated with stagnation.’
I mean. Dude. ‘Good’ inequality?!
Share buy-backs are a big unintended consequence of easy money. Low cost debt funds the repurchase of shares, and CEOs being given tranches of shares gives them a perverse incentive to increase share price, not output of the company. In 2008, US companies spent 50% of their profits on buybacks, which is insane by anyone’s measure. This leads to a situation wherein the 25 leading hedge fund managers earn FOUR TIMES the TOTAL INCOME of the S&P 500.
‘This was correct in a sense, according to transportation economist Hubert Horan: ‘What Uber has disrupted is
the idea that competitive consumer and capital markets will maximize overall economic welfare by rewarding
companies with superior efficiency. Its multibillion-dollar subsidies completely distorted marketplace price and
service signals, leading to a massive misallocation of resources.’’
‘In March 2018, Toys ‘R’ Us closed its doors. Back in 2005, the toy store had been acquired by a private equity
consortium. Weighed down with debt, management failed to adapt to online competition. The roll-out of new
megastores was deemed unaffordable and existing stores became shabby. Profits waned, leverage climbed, and
interest payments became pressing. The planned IPO was shelved. Toys ‘R’ Us was eventually put out of its
misery by a group of hedge funds, the owners of its secured debt, who reckoned it was worth more to them dead
than alive. Thirty-three thousand workers lost their jobs.’
‘Three years later, Tesla was valued at more than Toyota, even though the Japanese car maker produced over
twenty times as many vehicles.’
Because interest is the value of time, Chancellor says Tesla caused a wormhole in temporality. Ha.
He’s pure salty on Bitcoin and I’m here for it. He calls crypto ‘the perfect object of speculation’ because, with no interest rates or cash flow around it, rational valuation is impossible. It is too volatile to be a store of value, which is a key function of fiat currency, not to mention the transactions are slow and a climate disaster. It’s like other assets that produce no income – gold, cars, art.
What happens when the interest rates goes up? It will improve bank lending for mortgages to the little guy and reduce their liability for pensions. However, it will also kill zombie companies and with them, jobs; reduce corporate profits (cry); reduce stock and real estate prices; increase the cost of servicing public debt; and reignite emerging market and the Eurozone sovereign debt crises.
It was also fascinating to hear the economic explanation of the Arab Spring. Industrial commodities but also food were trading at bubble levels, and world cereal prices increased by 29%. Tunisia is one of the world’s biggest food importers, and Mohamed Bouazizi was a food seller. It started as a bread riot.
Chancellor concludes with the point that quantitative easing essentially means far more government involvement and backdoor banking nationalisation. Negative interest rates are a tax on capital and may result in a fully cashless world, which will be destructive to privacy and liberty. He then rushes to say that a digital gold standard might reattach interest rates to savings, reflect supply and demand more accurately, and help rates find their ‘natural’ level … a thing he’s already said doesn’t exist. Hmm.
‘Like Bastiat, Hazlitt lamented the persistent tendency of men to see only the immediate effects of any given
policy, or its effects on only a special group, and to neglect to inquire what the long-run effects of that policy
will be not only on the special group but on all groups. It is the fallacy of overlooking secondary consequences.’
I mean. This is a quote from his own book, reminding him of the very same point!
Some LOLs:
‘This may be an early example of subsidized public lending, or perhaps the temples attracted a better class of
debtor – after all, no one wants to default to a god. Higher rates on barley loans possibly reflected the fact that
such loans were made at times when corn was scarce and that the loans were to be repaid after the harvest when
barley was cheap and abundant.’
‘After Augustus’ death, the Emperor Tiberius hoarded money, with the result that interest rates rose above the legal limit and a banking crisis erupted in AD 33. Tiberius then decided to lend out the imperial treasure free of interest to patrician families, which brought about an immediate decline in interest rates and an end to the crisis. His actions constituted the world’s first experience of quantitative easing.’
‘Law’s biographer Antoin Murphy wrote in the wake of the global financial crisis. ‘From this perspective, it may
be argued that, notwithstanding the failure of the Mississippi System, Law’s banking successors have been Ben
Bernanke, Janet Yellen and Mario Draghi.’’
SAAAALTY.
‘By the early twenty-first century, interest had been charged on loans for around five thousand years, possibly
longer. Interest had survived biblical injunctions, Aristotelian outrage and the onslaught of medieval canonists
and modern socialists. Over the millennia borrowers had always had to pay something for the use of other
people’s wealth. Up to this date, bond yields had only dipped below zero on a couple of occasions, and that was
due only to regulatory and fiscal quirks.’
Sigh. Sigh. Sigh.
It did help me contextualise a lot of what I read that was written closer to things like the 1929 crash or the era of stagflation. For example, Keynes’ theory was that interest rates should be kept super low and this would result in wealth redistribution and social improvement. Instead, as Chancellor masterfully demonstrates, the ultra-low interest rates of the twenty-first century have resulted in: a grossly inflated wealth gap, redistribution to the 1% only, share buy-backs instead of investment, and overall a bad scene for anyone who’s not in the yacht class. Which, to give Keynes his due, was not necessarily the inevitable outcome, particularly if post-2008 the central banks had more closely followed Bagehot’s advice. (Bagehot wanted central banks to freely lend in a crisis, BUT at penal rates, against high quality collateral – a short term liquidity fix, in other words, that got you out of a hole but you didn’t want to continue for a second longer than necessary. Our banks have had it for over ten years now.)
I enjoyed the chronological approach to discussing interest rates, because Chancellor has the benefit of this century’s experience to be more balanced on the topic of ‘usury’ than Galbraith or Keynes or Locke. He quotes Irving Fisher explaining interest rates as a way of translating the future into the present, to reflect society’s overall time preference. He talks about the ‘natural’ rate in a much-needed critical fashion, ie: does it even exist? And beware that it is used in these econometric models if it does, in the same way economists think these models map directly on to real life. (Nope.) Bagehot thought interest rates were a barometer of trust, which is why, when they’re low, recklessness goes up with the easy money.
Chancellor then talks about Hayek (must add him to the TBR). Hayek didn’t think central bankers should stabilise prices, because this would lead to rapid technological development and a commodity glut. Stabilisation excessively stimulates output, which then drops as prices fall because there’s too much stuff made. We move on then to Goodhart’s law: when a measure becomes a target, it ceases to be a good measure (helloooooo, healthcare systems).
‘But factors that aren’t easily measured tend to get overlooked. As a result, the use of targets is
associated with a variety of adverse outcomes, including short-termism, the diversion of resources into
bureaucracy, risk aversion, unjustified rewards, and the undermining of institutional culture.’
‘Historian Jerry Muller adds a corollary to Campbell’s Law, namely: ‘anything that can be measured and
rewarded will be gamed.’’
He discusses the history of monetarism starting with the Louvre Accords of 1987 and summarises the US stagflation and the Japan bubble. In reality, he concludes, low interest rates fed demand for credit and fostered financial innovations like CDUs that increased supply. This was because you could get no yield on interest from government debt (bonds), so you had to find it elsewhere. In speculation.
Then, international credit was fragile because the US dollar is the global reserve economy. The Fed went for ultra-low interest rates, leading to a global credit boom. Other countries who kept their rates high saw huge capital flows seeking better returns. The Fed under Bernanke did not feel it was their responsibility to manage this.
‘The wealthiest homeowners pay the lowest mortgage rates ... There are two ways to interpret this relationship.
The first is to consider that the neediest borrowers are also the riskiest ... The second is to consider that the
neediest borrowers can be squeezed the hardest.’
By contrast, Borio feels that the largest influence on interest rates is monetary policy – not savings, investments, or demographics. Stable prices do not reliably reflect the ‘natural’ interest rate. Long term interest rates are strongly influenced by central banks rather than the market.
‘Amid all the heated commentary about greedy bankers and their ‘toxic’ securities, it is easy to overlook the fact
that subprime securities originally attracted investors because they enhanced income at a time when US interest
rates had fallen to historically low levels. Uncle Sam can stand many things, but he can’t stand 1 per cent.’
Key point.
In discussing 1929, I feel I start diverging ideologically from where Chancellor lands. He says the Great Depression propelled productivity and that recessions are ‘pit stops’ for increased efficiency; the ‘cleansing effect’ of businesses failing. And people dying and having an awful time, he doesn’t say. It did help me understand what happened in Europe post-2008, though; bad loans were just rolled over instead of taken off the books, and the low interest rates stopped ‘zombies’ from going into bankruptcy and in fact defaults on junk bonds dropped. Chancellor mentions that construction is a common ‘malinvestment’ seen when too much money is floating around, but he never clarifies what construction. I think this is important; ghost estates are a bad scene, but public works? Roads and railways? They’re an investment in the country’s future. I can’t call that ‘mal’ investment. I’m just not sure that’s what he means.
‘Schumpeter shared Hayek’s fears for the future. The bulk of the population, he thought, took improvements in
the standard of living for granted while resenting the insecurity produced by capitalism.’
… fair.
‘Good inequality fosters economic growth by providing incentives for people to improve their lot, whereas bad
inequality benefits a particular class (rent-seekers). Good inequality grows the economic pie, whereas bad
inequality is associated with stagnation.’
I mean. Dude. ‘Good’ inequality?!
Share buy-backs are a big unintended consequence of easy money. Low cost debt funds the repurchase of shares, and CEOs being given tranches of shares gives them a perverse incentive to increase share price, not output of the company. In 2008, US companies spent 50% of their profits on buybacks, which is insane by anyone’s measure. This leads to a situation wherein the 25 leading hedge fund managers earn FOUR TIMES the TOTAL INCOME of the S&P 500.
‘This was correct in a sense, according to transportation economist Hubert Horan: ‘What Uber has disrupted is
the idea that competitive consumer and capital markets will maximize overall economic welfare by rewarding
companies with superior efficiency. Its multibillion-dollar subsidies completely distorted marketplace price and
service signals, leading to a massive misallocation of resources.’’
‘In March 2018, Toys ‘R’ Us closed its doors. Back in 2005, the toy store had been acquired by a private equity
consortium. Weighed down with debt, management failed to adapt to online competition. The roll-out of new
megastores was deemed unaffordable and existing stores became shabby. Profits waned, leverage climbed, and
interest payments became pressing. The planned IPO was shelved. Toys ‘R’ Us was eventually put out of its
misery by a group of hedge funds, the owners of its secured debt, who reckoned it was worth more to them dead
than alive. Thirty-three thousand workers lost their jobs.’
‘Three years later, Tesla was valued at more than Toyota, even though the Japanese car maker produced over
twenty times as many vehicles.’
Because interest is the value of time, Chancellor says Tesla caused a wormhole in temporality. Ha.
He’s pure salty on Bitcoin and I’m here for it. He calls crypto ‘the perfect object of speculation’ because, with no interest rates or cash flow around it, rational valuation is impossible. It is too volatile to be a store of value, which is a key function of fiat currency, not to mention the transactions are slow and a climate disaster. It’s like other assets that produce no income – gold, cars, art.
What happens when the interest rates goes up? It will improve bank lending for mortgages to the little guy and reduce their liability for pensions. However, it will also kill zombie companies and with them, jobs; reduce corporate profits (cry); reduce stock and real estate prices; increase the cost of servicing public debt; and reignite emerging market and the Eurozone sovereign debt crises.
It was also fascinating to hear the economic explanation of the Arab Spring. Industrial commodities but also food were trading at bubble levels, and world cereal prices increased by 29%. Tunisia is one of the world’s biggest food importers, and Mohamed Bouazizi was a food seller. It started as a bread riot.
Chancellor concludes with the point that quantitative easing essentially means far more government involvement and backdoor banking nationalisation. Negative interest rates are a tax on capital and may result in a fully cashless world, which will be destructive to privacy and liberty. He then rushes to say that a digital gold standard might reattach interest rates to savings, reflect supply and demand more accurately, and help rates find their ‘natural’ level … a thing he’s already said doesn’t exist. Hmm.
‘Like Bastiat, Hazlitt lamented the persistent tendency of men to see only the immediate effects of any given
policy, or its effects on only a special group, and to neglect to inquire what the long-run effects of that policy
will be not only on the special group but on all groups. It is the fallacy of overlooking secondary consequences.’
I mean. This is a quote from his own book, reminding him of the very same point!
Some LOLs:
‘This may be an early example of subsidized public lending, or perhaps the temples attracted a better class of
debtor – after all, no one wants to default to a god. Higher rates on barley loans possibly reflected the fact that
such loans were made at times when corn was scarce and that the loans were to be repaid after the harvest when
barley was cheap and abundant.’
‘After Augustus’ death, the Emperor Tiberius hoarded money, with the result that interest rates rose above the legal limit and a banking crisis erupted in AD 33. Tiberius then decided to lend out the imperial treasure free of interest to patrician families, which brought about an immediate decline in interest rates and an end to the crisis. His actions constituted the world’s first experience of quantitative easing.’
‘Law’s biographer Antoin Murphy wrote in the wake of the global financial crisis. ‘From this perspective, it may
be argued that, notwithstanding the failure of the Mississippi System, Law’s banking successors have been Ben
Bernanke, Janet Yellen and Mario Draghi.’’
SAAAALTY.
‘By the early twenty-first century, interest had been charged on loans for around five thousand years, possibly
longer. Interest had survived biblical injunctions, Aristotelian outrage and the onslaught of medieval canonists
and modern socialists. Over the millennia borrowers had always had to pay something for the use of other
people’s wealth. Up to this date, bond yields had only dipped below zero on a couple of occasions, and that was
due only to regulatory and fiscal quirks.’
Sigh. Sigh. Sigh.
This entire review has been hidden because of spoilers.
January 21, 2023
A very good book overall, whose theme for today is “easy money is a drug,” while backing that up with a 4,000 year look at the history of interest rates, tied to discussions of what is a “normal” rate of interest, if there is such a thing, and other factors. The title comes from people as far back as Adam Smith or further nothing that interest was the price people paid on time discounting returns, especially if said time involves risk or anxiety.
NOTE: Goodreads has two different listings for this book, one with Chancellor's name misspelled, which I didn't notice until I posted my review there. Given what I said about "lowball reviewers," I'm leaving that one up.
Ideally, I’d rate this 4.5 stars, but it deserves the bump up.
Chancellor first goes back to antiquity and the first use of interest, predating Hammurabi’s Code by centuries. He notes, like Michael Hudson, that debt jubilees far preceded their biblical establishment, BUT gives some details that Hudson doesn’t.
One is that they weren’t on a 50-year or whatever cycle. Instead, a new king implemented them to cut social unrest, etc. Like new Caesars paying off the Pretorians. Second, there were two types of debt — barley-based, which were generally “consumer” loans in today’s terms, and silver-based, which were “commercial” loans. Only the barley loans were forgiven. Third, a new king wasn’t guaranteed to do this.
From there, he looks at debt, interest and definitions of usury around the ancient eastern Mediterranean, with some excursion into China. (India doesn’t make his radar screen for whatever reasons.)
Then, he starts early modern history where knowledgeable people would expect: John Law and the Mississippi Bubble, with details on just how bubbly it was. From there, it’s off to Walter Bagehot, his Bank of England as “lender of last” resort and just how much that’s abused in modern times. That includes even abuse in Switzerland, regarded throughout the Western world as a model of probity. Along the way, he loops in discussions on economists in the 1600s, notes on how “easy money” led to Fugger wealth and more.
NOTE: Chinese tankies will HATE this book because of the chapter “Financial Repression with Chinese characteristics.”
Samples:
Refuting people who challenge Chancellor's ideas on easy money? Chancellor’s short and sweet discursion on Iceland eating its shit, taking its haircut, and doing well today.
Finally, in his postscript, Chancellor speculates if central banks will offer their own digital currencies to drive out private crypto.
I don’t think I’d ever even read a newspaper piece by him before. But, per Chancellor’s Wiki page, he is indeed insightful. His political positions would seem to be, in US terms, mainstream liberal to the left side of that, and minus most neoliberalism. And, per his previous two books also ultimately being about bubbles, the global economy is either going to be facing a Long Unwinding, if the Fed holds the course, or else more Fake Growth. That said, while he got the last three global bubbles right, his defense of voting Leave, and calling out economists who warned about its problems, appear to have been more miss than hit on the prognostication side.
NOTE: Goodreads has two different listings for this book, one with Chancellor's name misspelled, which I didn't notice until I posted my review there. Given what I said about "lowball reviewers," I'm leaving that one up.
Ideally, I’d rate this 4.5 stars, but it deserves the bump up.
Chancellor first goes back to antiquity and the first use of interest, predating Hammurabi’s Code by centuries. He notes, like Michael Hudson, that debt jubilees far preceded their biblical establishment, BUT gives some details that Hudson doesn’t.
One is that they weren’t on a 50-year or whatever cycle. Instead, a new king implemented them to cut social unrest, etc. Like new Caesars paying off the Pretorians. Second, there were two types of debt — barley-based, which were generally “consumer” loans in today’s terms, and silver-based, which were “commercial” loans. Only the barley loans were forgiven. Third, a new king wasn’t guaranteed to do this.
From there, he looks at debt, interest and definitions of usury around the ancient eastern Mediterranean, with some excursion into China. (India doesn’t make his radar screen for whatever reasons.)
Then, he starts early modern history where knowledgeable people would expect: John Law and the Mississippi Bubble, with details on just how bubbly it was. From there, it’s off to Walter Bagehot, his Bank of England as “lender of last” resort and just how much that’s abused in modern times. That includes even abuse in Switzerland, regarded throughout the Western world as a model of probity. Along the way, he loops in discussions on economists in the 1600s, notes on how “easy money” led to Fugger wealth and more.
NOTE: Chinese tankies will HATE this book because of the chapter “Financial Repression with Chinese characteristics.”
Samples:
Refuting people who challenge Chancellor's ideas on easy money? Chancellor’s short and sweet discursion on Iceland eating its shit, taking its haircut, and doing well today.
Finally, in his postscript, Chancellor speculates if central banks will offer their own digital currencies to drive out private crypto.
I don’t think I’d ever even read a newspaper piece by him before. But, per Chancellor’s Wiki page, he is indeed insightful. His political positions would seem to be, in US terms, mainstream liberal to the left side of that, and minus most neoliberalism. And, per his previous two books also ultimately being about bubbles, the global economy is either going to be facing a Long Unwinding, if the Fed holds the course, or else more Fake Growth. That said, while he got the last three global bubbles right, his defense of voting Leave, and calling out economists who warned about its problems, appear to have been more miss than hit on the prognostication side.
September 26, 2022
Extraordinario libro sobre la historia de uno de los conceptos más importantes de la actividad humana: la tasa de interés.
Este libro es un verdadero tour de force a lo largo del tiempo y de la geografía, no solo sobre la práctica desde los inicios de la humanidad de cobrar intereses por los préstamos y, en tiempos más recientes, sobre la importancia de la tasa de interés como el principal instrumento de política monetaria, sino sobre la evolución de la comprensión teórica del concepto y sus implicaciones (¿qué es la tasa de interés?, ¿cuál es su nivel adecuado?, ¿es ético cobrar intereses por los préstamos?...) así como el papel fundamental que juega para la coordinación de las actividades humanas a través del tiempo.
La tasa de interés, a final de cuentas, es el precio del tiempo y, como tal, refleja las preferencias y ayuda a guiar las decisiones de ahorro y de inversión de las personas, siempre y cuando pueda ser determinada libremente en el mercado. Algo que queda muy claro después de leer este libro es cómo la manipulación de la tasa de interés ha sido la causa de todas las grandes crisis económicas, desde la burbuja de los bonos de Mississippi en el siglo XVIII hasta la gran crisis financiera del 2007-2008. La mayoría de la gente piensa que las tasas de interés se deben mantener bajas para facilitar el crédito y promover la inversión y la actividad económica, pero se olvidan de las consecuencias negativas como la formación de burbujas especulativas, el desincentivo al ahorro y las inversiones improductivas.
Ahora que muchos expertos financieros y economistas opinan sobre la pertinencia de que los bancos centrales aumenten la tasa de interés para controlar la inflación, parecería que la pregunta adecuada es más bien si no se debería abandonar uno de los últimos vestigios de la planeación centralizada: la supuesta capacidad de los bancos centrales de definir la tasa de interés "correcta" para mantener una economía "equilibrada", es decir, inflación baja y altos niveles de empleo y de inversión, evitando al mismo tiempo las burbujas financieras. Si hay muy pocos economistas serios que piensen que los controles de precios son apropiados, no deja de ser irónico que la mayoría siga pensando que es conveniente y posible intentar controlar uno de los precios más importantes de la economía: la tasa de interés.
Este libro es un verdadero tour de force a lo largo del tiempo y de la geografía, no solo sobre la práctica desde los inicios de la humanidad de cobrar intereses por los préstamos y, en tiempos más recientes, sobre la importancia de la tasa de interés como el principal instrumento de política monetaria, sino sobre la evolución de la comprensión teórica del concepto y sus implicaciones (¿qué es la tasa de interés?, ¿cuál es su nivel adecuado?, ¿es ético cobrar intereses por los préstamos?...) así como el papel fundamental que juega para la coordinación de las actividades humanas a través del tiempo.
La tasa de interés, a final de cuentas, es el precio del tiempo y, como tal, refleja las preferencias y ayuda a guiar las decisiones de ahorro y de inversión de las personas, siempre y cuando pueda ser determinada libremente en el mercado. Algo que queda muy claro después de leer este libro es cómo la manipulación de la tasa de interés ha sido la causa de todas las grandes crisis económicas, desde la burbuja de los bonos de Mississippi en el siglo XVIII hasta la gran crisis financiera del 2007-2008. La mayoría de la gente piensa que las tasas de interés se deben mantener bajas para facilitar el crédito y promover la inversión y la actividad económica, pero se olvidan de las consecuencias negativas como la formación de burbujas especulativas, el desincentivo al ahorro y las inversiones improductivas.
Ahora que muchos expertos financieros y economistas opinan sobre la pertinencia de que los bancos centrales aumenten la tasa de interés para controlar la inflación, parecería que la pregunta adecuada es más bien si no se debería abandonar uno de los últimos vestigios de la planeación centralizada: la supuesta capacidad de los bancos centrales de definir la tasa de interés "correcta" para mantener una economía "equilibrada", es decir, inflación baja y altos niveles de empleo y de inversión, evitando al mismo tiempo las burbujas financieras. Si hay muy pocos economistas serios que piensen que los controles de precios son apropiados, no deja de ser irónico que la mayoría siga pensando que es conveniente y posible intentar controlar uno de los precios más importantes de la economía: la tasa de interés.
February 7, 2025
Dense but still worthy look the history and effect of interest rates on society. More and more in this genre I find myself struck by how utterly speculative and bubble-like so much of the economy is, whether it's the Mississippi bubble in 1700s France, the real estate bubble in China or much of today's do-it-yourself investing. Crypto is "the perfect vehicle for speculation" and mirrors much of what goes into todays investing: mainly hype and hopeless overvaluations with minimal thought devoted to the basics of a company's structure, capacity, and realistic window for growth.
At its core low interest rates means cheaper/fewer consequences for the "malinvestment of capital" and more zombie-companies that should have died off remaining alive. Tough to say what the correct balance is between pure creative destruction and gov't bailouts, but given the disastrous response to 2007-08 I'd say this is worth reading if only to better understand how perverse the incentives are that led to this appetite for risk in the first place.
In the end it made me feel less blood-boiling à la Michael Lewis and more concern for our shortsightedness.
At its core low interest rates means cheaper/fewer consequences for the "malinvestment of capital" and more zombie-companies that should have died off remaining alive. Tough to say what the correct balance is between pure creative destruction and gov't bailouts, but given the disastrous response to 2007-08 I'd say this is worth reading if only to better understand how perverse the incentives are that led to this appetite for risk in the first place.
In the end it made me feel less blood-boiling à la Michael Lewis and more concern for our shortsightedness.
January 1, 2023
The most important price in any economy – price of money over time i.e. interest.
In existence pretty much since recorded human history, it has been one of the most hotly debated topics. It has piqued the ‘interest’ not only of businesses, financiers and governments, but also of religious institutions who have reviled the concept and mandated the wrath of God to discourage the practice. Yet, Interest has survived kings, wars, religions, economic models, and so on.
Edward Chancellor’s book, The Price of Time, gives a detailed overview on the evolution of interest across ages and civilisations. He brings forth the various debates for and against interest and how it has somehow managed to come up trumps, whether in a capitalist world or a socialist economy. It highlights how various forms of governments have consistently tried taming this bull, but with ill-consequences. Not surprisingly, for most of history, the issue has been about managing or avoiding high (real or perceived) interest rates, primarily driven by the social and political impact of the same on populations, and hence regimes.
One of the most important debates that Chancellor touches upon, is about assessing the correct interest level for an economy. Is it linked to the GDP growth or the return on capital earned by a business? How does one factor in risk? Should one let the market determine the right price of money, in which case questions of social order and economic stability come into play. Or should governments (or Central banks) simply mandate it, as has been the attempt for a few centuries now. It is a question which has eluded a clear answer till date.
A significant focus of the book is on the recent era of artificially managed, extra-ordinarily low interest rates. While the argument for quantitative easing has been consistently made for over 400 years, the cheap-money era truly started with Greenspan in USA spreading across to Japan. Post the dot-com bubble burst, cheap-money became endemic across the world as governments / central banks tried to avoid a recession at all costs. In Chancellor’s words, the monetary policy experts usurped the role of governments and made interest rate the single-most important tool to ensure financial and economic stability.
Chancellor presents multiples examples from history, the Mississippi Scheme, South Sea Bubble, Foreign Bonds mania, etc, that indicate that periods of financial recklessness do not occur at random. They have been found to be unequivocally linked to easy-money and low interest rates (simplistically read as low discount rate resulting in higher DCF values and hence valuation frenzies across asset classes). Despite the same, the Central bankers like Greenspan, Bernanke, Yellen and Draghi, chose to pick only those lessons from history which seemed convenient. And they drove interest rates not just to the ground, but some also to the other side of the zero-bound, penalising individuals and corporates alike for their savings. Economists like Bagehot, considered a favourite of Central bankers as he emphasised the role of an easy money policy in times of stress, also cautioned against keeping interest rates too low. Yet, this fact is conveniently ignored by the followers of the Bagehot Rule.
The Central bankers, in the author’s words, unwittingly walked into a self-fulfilling prophesy of low interest rates. The low rates led to rising indebtedness and hence need to keep rates low going forward. What was meant to be a mechanism to boost the economy, for the most parts remained a mechanism to boost the markets and asset owners, thereby further skewing the income and wealth inequality across the world.
In the book, Chancellor presents some of the impacts of the decades of the ultra-easy monetary policy, on different social, age and economic groups, including issues like inter-generational wealth transfer. The longer-term impact of these policies will still take decades to figure out. What makes it scarier is that we are already in the middle of a massive unwinding project, without even understanding the width and depth of the damage that we are seeking to undo.
The one other theme which stands out in the book is the role played by the low-interest rate regime in the growth of China. In the ten years to 2015, China accounted for ~50% of the total credit creation in the world. This easy money policy has led to a real estate and infrastructure led boom where many projects do not meet any reasonable commercial justification from a return-on-investment perspective (except at extremely low rates) but have led to the creation of a massive debt overhang. Now as the global economy slows down and the rates start to rise, the same ghost investments are likely come back to bite the Chinese economy, with potentially disastrous consequences for the world.
While generally critical of most institutions, Chancellor is generally appreciative of the Bank of International Settlements (BIS). The BIS has been constantly warning against the long-term consequences of the unbridled easy-money policy of the US Fed. Infact, the BIS has gone so far as to say that beyond a point, growth of a country’s financial system is a drag on productivity growth - as the financial system ceases to be an enabler but an end in itself. Interesting, as it is one of the least understood institutions in general financial markets.
Overall, quite a fascinating book about a rather technical topic. Lots of very interesting stories and nuggets, but with very little jargon. Sometimes it gets a bit tedious with numerous similar sounding examples being used to emphasise a point. But all in all, extremely instructive and thought-provoking.
In existence pretty much since recorded human history, it has been one of the most hotly debated topics. It has piqued the ‘interest’ not only of businesses, financiers and governments, but also of religious institutions who have reviled the concept and mandated the wrath of God to discourage the practice. Yet, Interest has survived kings, wars, religions, economic models, and so on.
Edward Chancellor’s book, The Price of Time, gives a detailed overview on the evolution of interest across ages and civilisations. He brings forth the various debates for and against interest and how it has somehow managed to come up trumps, whether in a capitalist world or a socialist economy. It highlights how various forms of governments have consistently tried taming this bull, but with ill-consequences. Not surprisingly, for most of history, the issue has been about managing or avoiding high (real or perceived) interest rates, primarily driven by the social and political impact of the same on populations, and hence regimes.
One of the most important debates that Chancellor touches upon, is about assessing the correct interest level for an economy. Is it linked to the GDP growth or the return on capital earned by a business? How does one factor in risk? Should one let the market determine the right price of money, in which case questions of social order and economic stability come into play. Or should governments (or Central banks) simply mandate it, as has been the attempt for a few centuries now. It is a question which has eluded a clear answer till date.
A significant focus of the book is on the recent era of artificially managed, extra-ordinarily low interest rates. While the argument for quantitative easing has been consistently made for over 400 years, the cheap-money era truly started with Greenspan in USA spreading across to Japan. Post the dot-com bubble burst, cheap-money became endemic across the world as governments / central banks tried to avoid a recession at all costs. In Chancellor’s words, the monetary policy experts usurped the role of governments and made interest rate the single-most important tool to ensure financial and economic stability.
Chancellor presents multiples examples from history, the Mississippi Scheme, South Sea Bubble, Foreign Bonds mania, etc, that indicate that periods of financial recklessness do not occur at random. They have been found to be unequivocally linked to easy-money and low interest rates (simplistically read as low discount rate resulting in higher DCF values and hence valuation frenzies across asset classes). Despite the same, the Central bankers like Greenspan, Bernanke, Yellen and Draghi, chose to pick only those lessons from history which seemed convenient. And they drove interest rates not just to the ground, but some also to the other side of the zero-bound, penalising individuals and corporates alike for their savings. Economists like Bagehot, considered a favourite of Central bankers as he emphasised the role of an easy money policy in times of stress, also cautioned against keeping interest rates too low. Yet, this fact is conveniently ignored by the followers of the Bagehot Rule.
The Central bankers, in the author’s words, unwittingly walked into a self-fulfilling prophesy of low interest rates. The low rates led to rising indebtedness and hence need to keep rates low going forward. What was meant to be a mechanism to boost the economy, for the most parts remained a mechanism to boost the markets and asset owners, thereby further skewing the income and wealth inequality across the world.
In the book, Chancellor presents some of the impacts of the decades of the ultra-easy monetary policy, on different social, age and economic groups, including issues like inter-generational wealth transfer. The longer-term impact of these policies will still take decades to figure out. What makes it scarier is that we are already in the middle of a massive unwinding project, without even understanding the width and depth of the damage that we are seeking to undo.
The one other theme which stands out in the book is the role played by the low-interest rate regime in the growth of China. In the ten years to 2015, China accounted for ~50% of the total credit creation in the world. This easy money policy has led to a real estate and infrastructure led boom where many projects do not meet any reasonable commercial justification from a return-on-investment perspective (except at extremely low rates) but have led to the creation of a massive debt overhang. Now as the global economy slows down and the rates start to rise, the same ghost investments are likely come back to bite the Chinese economy, with potentially disastrous consequences for the world.
While generally critical of most institutions, Chancellor is generally appreciative of the Bank of International Settlements (BIS). The BIS has been constantly warning against the long-term consequences of the unbridled easy-money policy of the US Fed. Infact, the BIS has gone so far as to say that beyond a point, growth of a country’s financial system is a drag on productivity growth - as the financial system ceases to be an enabler but an end in itself. Interesting, as it is one of the least understood institutions in general financial markets.
Overall, quite a fascinating book about a rather technical topic. Lots of very interesting stories and nuggets, but with very little jargon. Sometimes it gets a bit tedious with numerous similar sounding examples being used to emphasise a point. But all in all, extremely instructive and thought-provoking.
July 6, 2023
This one’s dense, but worthwhile. The first half is a history of interest, and the second half is a thorough and critical look at ultra low interest rates.
June 18, 2024
الكتاب ليس للقراءة العابرة. جذبني العنوان وكنت اعتقد أنه عن تاريخ ارتفاع وانخفاض الفائدة البنكية وتأثيراتها التاريخية. لكن الكتاب طلع هذا وأكثر. المؤلف يناقش تاريخ الفائدة لكنه يربطها بالتاريخ القريب، فهو يقول أنّ الفائدة البنكيّة المنخفضة والتي شاهدناها خلال العشرين سنة الماضية هي مضرة بالاقتصاد وليست مفيدة. هذا التسييل المالي الذي قامت به الحكومات في عام ٢٠٠٨ ثم في كورونا مع خفض الفائدة إلى الصفر تقريبا جعل المستثمرين يبحثون عن المشاريع عالية المخاطر أو التي أرباحها بالمستقبل البعيد وهذا بدوره لا يساعد على زيادة الانتاجية الاقتصادية. المؤلف لا يخفي امتعاضه من بن برنانكي رئيس الاحتياطي الفدرالي فهو برأي المؤلف أخطأ بسياسته بالأزمة الاقتصادية.
قلت أن الكتاب ليس للقراءة العابرة لأنني عانيت من فهم فصول كثيرة من الكتاب مع استخدام المؤلف لمصطلحات اقتصادية كثيرة وغامضة، ولأن الكتاب مليء بالمقولات والاستطرادات المربكة لي. لكن بالمحصلة استفدت منه واستمتعت بقراءته.
قلت أن الكتاب ليس للقراءة العابرة لأنني عانيت من فهم فصول كثيرة من الكتاب مع استخدام المؤلف لمصطلحات اقتصادية كثيرة وغامضة، ولأن الكتاب مليء بالمقولات والاستطرادات المربكة لي. لكن بالمحصلة استفدت منه واستمتعت بقراءته.
March 8, 2024
Stunning read - delves into the origins and evolution of the interest rate, its profound impact on economies throughout history, and its significance in recent economic experiment with zero rates. Previously interest rates were viewed as merely the price of money, it highlights how they facilitate transactions across time, making it a "price of time".
April 16, 2025
Every economist has an axe to grind. Every economist cherry-picks his examples. Few economists listen.
January 21, 2023
A very good book overall, whose theme for today is “easy money is a drug,” while backing that up with a 4,000 year look at the history of interest rates, tied to discussions of what is a “normal” rate of interest, if there is such a thing, and other factors. The title comes from people as far back as Adam Smith or further nothing that interest was the price people paid on time discounting returns, especially if said time involves risk or anxiety.
Ideally, I’d rate this 4.5 stars, but with it getting lowballed by two people, both of whom argue against Chancellor’s central premise that the “easy money is a drug,” and the Fed and other banks causing it — and argue wrongly — it gets bumped up rather than down to 4 stars.
Chancellor first goes back to antiquity and the first use of interest, predating Hammurabi’s Code by centuries. He notes, like Michael Hudson, that debt jubilees far preceded their biblical establishment, BUT gives some details that Hudson doesn’t.
One is that they weren’t on a 50-year or whatever cycle. Instead, a new king implemented them to cut social unrest, etc. Like new Caesars paying off the Pretorians. Second, there were two types of debt — barley-based, which were generally “consumer” loans in today’s terms, and silver-based, which were “commercial” loans. Only the barley loans were forgiven. Third, a new king wasn’t guaranteed to do this.
From there, he looks at debt, interest and definitions of usury around the ancient eastern Mediterranean, with some excursion into China. (India doesn’t make his radar screen for whatever reasons.)
Then, he starts early modern history where knowledgeable people would expect: John Law and the Mississippi Bubble, with details on just how bubbly it was. From there, it’s off to Walter Bagehot, his Bank of England as “lender of last” resort and just how much that’s abused in modern times. That includes even abuse in Switzerland, regarded throughout the Western world as a model of probity. Along the way, he loops in discussions on economists in the 1600s, notes on how “easy money” led to Fugger wealth and more.
NOTE: Chinese tankies will HATE this book because of the chapter “Financial Repression with Chinese characteristics.”
Samples:
Refuting the downvoters? Chancellor’s short and sweet discursion on Iceland eating its shit, taking its haircut, and doing well today.
Finally, in his postscript, Chancellor speculates if central banks will offer their own digital currencies to drive out private crypto.
I don’t think I’d ever even read a newspaper piece by him before. But, per Chancellor’s Wiki page, he is indeed insightful. His political positions would seem to be, in US terms, mainstream liberal to the left side of that, and minus most neoliberalism. And, per his previous two books also ultimately being about bubbles, the global economy is either going to be facing a Long Unwinding, if the Fed holds the course, or else more Fake Growth. That said, while he got the last three global bubbles right, his defense of voting Leave, and calling out economists who warned about its problems, appear to have been more miss than hit on the prognostication side.
Ideally, I’d rate this 4.5 stars, but with it getting lowballed by two people, both of whom argue against Chancellor’s central premise that the “easy money is a drug,” and the Fed and other banks causing it — and argue wrongly — it gets bumped up rather than down to 4 stars.
Chancellor first goes back to antiquity and the first use of interest, predating Hammurabi’s Code by centuries. He notes, like Michael Hudson, that debt jubilees far preceded their biblical establishment, BUT gives some details that Hudson doesn’t.
One is that they weren’t on a 50-year or whatever cycle. Instead, a new king implemented them to cut social unrest, etc. Like new Caesars paying off the Pretorians. Second, there were two types of debt — barley-based, which were generally “consumer” loans in today’s terms, and silver-based, which were “commercial” loans. Only the barley loans were forgiven. Third, a new king wasn’t guaranteed to do this.
From there, he looks at debt, interest and definitions of usury around the ancient eastern Mediterranean, with some excursion into China. (India doesn’t make his radar screen for whatever reasons.)
Then, he starts early modern history where knowledgeable people would expect: John Law and the Mississippi Bubble, with details on just how bubbly it was. From there, it’s off to Walter Bagehot, his Bank of England as “lender of last” resort and just how much that’s abused in modern times. That includes even abuse in Switzerland, regarded throughout the Western world as a model of probity. Along the way, he loops in discussions on economists in the 1600s, notes on how “easy money” led to Fugger wealth and more.
NOTE: Chinese tankies will HATE this book because of the chapter “Financial Repression with Chinese characteristics.”
Samples:
Refuting the downvoters? Chancellor’s short and sweet discursion on Iceland eating its shit, taking its haircut, and doing well today.
Finally, in his postscript, Chancellor speculates if central banks will offer their own digital currencies to drive out private crypto.
I don’t think I’d ever even read a newspaper piece by him before. But, per Chancellor’s Wiki page, he is indeed insightful. His political positions would seem to be, in US terms, mainstream liberal to the left side of that, and minus most neoliberalism. And, per his previous two books also ultimately being about bubbles, the global economy is either going to be facing a Long Unwinding, if the Fed holds the course, or else more Fake Growth. That said, while he got the last three global bubbles right, his defense of voting Leave, and calling out economists who warned about its problems, appear to have been more miss than hit on the prognostication side.
February 19, 2023
Excellent book. Popularising the idea of interest as the price of time, but then tying it to the emergence of bubbles is done quite well. Especially useful given the quite wide range of sources and ideological breadth within them.
The idea behind low rates causing lower rates still is well explained, though there could have been more direct reference made to the global refinancing mechanism.
The chapter on China is weaker than the rest, though it goes into some rarely spoken points in some detail. The explanations within it don't necessarily fit with the conclusion of a sharp devaluation and ensuing inflationary crisis as predicted.
The idea behind low rates causing lower rates still is well explained, though there could have been more direct reference made to the global refinancing mechanism.
The chapter on China is weaker than the rest, though it goes into some rarely spoken points in some detail. The explanations within it don't necessarily fit with the conclusion of a sharp devaluation and ensuing inflationary crisis as predicted.
June 28, 2023
I was never really into making puzzle picture frames but I can imagine the feeling someone gets when they connect multiple pieces together and voila! The picture frame begins to become more clear, the resolution increases and the insight grows. This book gave me that feeling, usually with books who have a singular concept that tries to weave its way into so many often overstep. The jump from a novel concept into essentially becoming a "Theory of everything" is something I see all the time. This book was one of the first times where I believe the author is correct to tie in their premise into all of our lives. That premise which slowly forms in part II, is the enormous impact interest rates have of the economy, our economic behavior, our long term decision making and effectively our lives. I have noticed some reviews stating "This is not a book on interest rates but on bubbles". I am not sure you can separate the two, bubbles are created when interest rates are too low, creating tumors that swell up to sizes where there is no remediation but "Hope for the best". This author walks us through all of the biggest booms and busts from century to century, showing the same patterns repeat themselves over and over again except with newer technology. Same concept as the past with new technology but the same dumb, greedy and overly ambitious humans. I must say before I begin this review, the author almost lost me. Part one of the book is dry, it reads like an academic conference but remaining portions of the book are jam packed with insights that it makes you forget and more importantly forgive what the author put you through. Let's begin.
I have been fascinated with the last 15 years of economic global development particularly when the Fed stepped in and backstopped the market where we were seeing a supernova in bubbles. My review will focus on the last 15 years only because I have been trying to figure out something that feels off in terms of prices, housing costs, standard of living, food costs, rental costs etc. Over the past 15 years we have seen 100 million dollar homes, 200 million dollar homes, 35 million dollar cars, artwork that has sold for half a billion. At the same time, housing costs are so high in America you need 6 figures to be able to buy a home or decades of saving if not. It's fake money, fake valuations, fake assets, fake economic indicators. The entire economy has been an absolute fugazi as the Italians say. Interest rates being lowered to 0% effectively created an environment where a multitude of things happened, zombie businesses proliferating with no cash flow, no hope of even turning a profit but simply received funding. This is bad for a couple of reasons, it stalls innovation, since access to capital is so easy, it does not force companies to be innovative, effectively encouraging low growth and stagnation. It also creates monopolies where large multinational corporations can buyout all competitors or drive them out of business buy taking in more debt for mergers. This also has another effect. Stock buybacks, capitalism should revolve around creating goods and services the population wants to purchase, if they don't the company dies. Instead of creating good or services, the metrics can be gamed, corporations can take on debt because interest rates are 0%, cut worker pay or lay them off. Take the debt and buy back shares and inflate the stock price giving the executives windfalls of cash. Another consequence of this is monopolies can thrive in this environment, consolidating competition, raising prices and forcing consumers to buy their products because there are no other options. This is whats happening right now.
As interests rates went down to 0%, it effectively made the people having assets exceptionally more wealthy while pricing out the middle class and lower class out of their classes. This creates a large gap between upper middle class, the wealthy and everyone else. This is what the Fed's policy has done, interest rates being lowered to 0 along with citizens united being passed, giving the richest americans unlimited capital and the ability to use that capital for political gain has spouted a new generation of corruption that even the gilded age could not have fathomed. Legalized bribery is the norm and even then thats not good enough for the mega donors who have lobbied for the use of "Dark money". Money that you don't even know where its coming from. Interest rates being cut to 0% have forced people to chase yield instead of save, its damaged a generation of elderly individuals with very little they can get from savings.
This is important, central bankers have effectively tilted the game even further to the richest Americans. At the end of 2008 and the great recession, our solutions were to inject more debt and destabilization into the system. 0% interest rates for so long created an equilibrium where wall street would get annihilated if rates were even raised by 1%. This is why they raised rates and then quickly back tracked all throughout the 2010's. A generation of wealth went to the richest Americans and right now we're paying the price for it. Bank foreclosures, college foreclosures, real estate foreclosures.. You name it. The housing market is so insane right now that I feel bad for anyone trying to purchase a home because you will probably pay too high of a price or you will suffer from interest rates.
I feel like I did not do this book justice but I thought it was a great read, I could probably go on for another couple of paragraphs but I really should get back to work. Until next time, peace.
5 stars for me.
I have been fascinated with the last 15 years of economic global development particularly when the Fed stepped in and backstopped the market where we were seeing a supernova in bubbles. My review will focus on the last 15 years only because I have been trying to figure out something that feels off in terms of prices, housing costs, standard of living, food costs, rental costs etc. Over the past 15 years we have seen 100 million dollar homes, 200 million dollar homes, 35 million dollar cars, artwork that has sold for half a billion. At the same time, housing costs are so high in America you need 6 figures to be able to buy a home or decades of saving if not. It's fake money, fake valuations, fake assets, fake economic indicators. The entire economy has been an absolute fugazi as the Italians say. Interest rates being lowered to 0% effectively created an environment where a multitude of things happened, zombie businesses proliferating with no cash flow, no hope of even turning a profit but simply received funding. This is bad for a couple of reasons, it stalls innovation, since access to capital is so easy, it does not force companies to be innovative, effectively encouraging low growth and stagnation. It also creates monopolies where large multinational corporations can buyout all competitors or drive them out of business buy taking in more debt for mergers. This also has another effect. Stock buybacks, capitalism should revolve around creating goods and services the population wants to purchase, if they don't the company dies. Instead of creating good or services, the metrics can be gamed, corporations can take on debt because interest rates are 0%, cut worker pay or lay them off. Take the debt and buy back shares and inflate the stock price giving the executives windfalls of cash. Another consequence of this is monopolies can thrive in this environment, consolidating competition, raising prices and forcing consumers to buy their products because there are no other options. This is whats happening right now.
As interests rates went down to 0%, it effectively made the people having assets exceptionally more wealthy while pricing out the middle class and lower class out of their classes. This creates a large gap between upper middle class, the wealthy and everyone else. This is what the Fed's policy has done, interest rates being lowered to 0 along with citizens united being passed, giving the richest americans unlimited capital and the ability to use that capital for political gain has spouted a new generation of corruption that even the gilded age could not have fathomed. Legalized bribery is the norm and even then thats not good enough for the mega donors who have lobbied for the use of "Dark money". Money that you don't even know where its coming from. Interest rates being cut to 0% have forced people to chase yield instead of save, its damaged a generation of elderly individuals with very little they can get from savings.
This is important, central bankers have effectively tilted the game even further to the richest Americans. At the end of 2008 and the great recession, our solutions were to inject more debt and destabilization into the system. 0% interest rates for so long created an equilibrium where wall street would get annihilated if rates were even raised by 1%. This is why they raised rates and then quickly back tracked all throughout the 2010's. A generation of wealth went to the richest Americans and right now we're paying the price for it. Bank foreclosures, college foreclosures, real estate foreclosures.. You name it. The housing market is so insane right now that I feel bad for anyone trying to purchase a home because you will probably pay too high of a price or you will suffer from interest rates.
I feel like I did not do this book justice but I thought it was a great read, I could probably go on for another couple of paragraphs but I really should get back to work. Until next time, peace.
5 stars for me.
Read
November 1, 2022DNF. Not worth the time.
November 16, 2022
This was an absolute game-changer for me. Put in simple terms, this book is about the role of interest in a modern economy, and comes with the caveat that interest is an extremely complicated subject that even renowned world economists and scholars struggle to fully understand. (Sideboob comment: Making the sweeping generalization that high interest is rapacious or the blanket argument that the free market should dictate the interest rate betrays a childish understanding of how money, markets, geopolitical events, etc. work. More on this below.) In its most basic terms, interest can be defined as the cost of money over time which takes risk and trust into account. The rate of interest impacts behavior at all levels - from the mattress stuffing individual to the major conglomerate answering to its shareholders to the autocratic government wishing to maintain social order while counterbalancing import / export and debt concerns. Right or wrong, the reality is that all modern economies are overseen by central banks that exert some control over the rate of interest, though for various reasons the United States Federal Reserve (the Fed) ostensibly has the lion’s share of said control. Tabling for a moment the argument for letting the market set the rate of interest and taking for granted the wisdom of setting inflation at 2%, in a vacuum the basic downsides of an artificially low interest rate are the discouragement of savings, rapid credit expansion, and inflation; by the same token an interest rate that is too high results in economic contraction and a potential deflationary spiral. Today’s Fed uses the specter of said deflation, unemployment, and price instability to justify ultra low interest rates. The book’s main counterargument to the Fed’s monetary policy (since at least Greenspan’s tenure) is that artificially low rates result in the misallocation of capital and ultimately stifles long term economic growth in exchange for short term relief. Put another way, creative destruction and natural selection (which often happen during recessions and depressions) must be allowed to occur; the lack of fiscal responsibility and fortitude, as well as politics, keeps us in a state of perpetually low interest which begets lower interest until the day of reckoning when everyone sees the holes in the Emperor’s underwear. The impact of constant low rates is being felt again today, not only in the form of inflation, but also with the prevalence of zombie companies, especially in Silicon Valley: cheap / easy money keeps inefficient companies on life-support also allowing them to poach and retain talent that would be better served elsewhere; for families we saw the price of housing skyrocket due to a surge in paper wealth and low cost leveraging (i.e., cheap mortgages). The People’s Republic of China now faces a similar problem but on an even grander scale - there, households have no choice but to keep their money at state selected banks (chosen more on relationships than business acumen) with little or no legal option to take their money out of the country due to China’s laws precluding capital flight. Moreover, because artificially set interest rates reflect neither return on capital nor credit risk, China’s economy has suffered from the twin evils of capital misallocation and excessive debt. (Another sideboob: As the keeper of the world’s reserve currency, the US doesn’t need to maintain its own foreign-exchange reserves, nor worry about its balance of payments. There is no limit on how many dollars flow abroad nor how much the US borrows from foreigners. America can run ‘deficits without tears’. Over the years the US has taken advantage of this privilege to become the world’s largest international debtor.) The rampant speculation caused by artificially low rates has also found its way into cryptocurrencies, which is somewhat ironic considering that their inception (at least BTC) was originally designed to combat government fiat over money and inflation. What’s happened with crypto thus far has not been a new form of money but rather an ideal object of speculation that has almost become a caricature for financial impropriety and recklessness. Back to the notion of high interest rates equating to exploitation of the poor, the book also goes into sordid detail about how the periods of greatest inequality came during periods of abnormally low interest rates (see e.g., the meteoric rises of John Law, JD Rockefeller, Jeff Bezos, and most recently Elon Musk). One possible explanation is that the rich and the financially literate (e.g., investment bankers and financiers) are in much better positions to become large borrowers and to acquire assets when money is cheap. Throughout history, usury laws have “protected” borrowers by capping interest rates whereas there is no law (or even word) to describe the injustice of precluding lenders from being adequately compensated for their savings, especially when borrowers use that money to make a huge profit. The book concludes with an ardent statement about how, despite being a ‘capitalist nation, the US and the West in general accept central planning by allowing the control and manipulation of the most important price in a market based economy - the rate of interest. An economy in which risk is socialized is no longer capitalist. “Capitalism without bankruptcy is like Christianity without hell.” #thepriceoftime
May 31, 2023
"The Price of Time" written by Edward Chancellor is an exceptional read for those who are interested in finance and economics. This well-written book gives readers a deep understanding of the value of time, from both a historical and economic point of view.
The book is divided into several sections that explain different dimensions of time and its value. Chancellor has provided extensive research that is presented in an easy-to-understand way, making the book accessible for readers of all backgrounds. He provides examples of famous personalities throughout history who have recognized the value of time and how they managed it to achieve great things.
One of the great things about this book is that it encourages readers to reflect on their use of time and how it can impact their lives in significant ways. It has great insights into human behavior and how our perception of time has changed over the years. The analysis offered by the book examines how changes in the economy and society have affected the value of time.
Chancellor does a great job of showing how time affects various aspects of our lives, and how understanding the value of time can lead us to make wiser decisions about our finance, work, and personal lives. The book offers a comprehensive view of time as a valuable resource that we should be mindful of, manage, and use effectively.
"The Price of Time" presents an excellent and engaging exploration of the importance of time management and its impact on our lives. It is highly recommended for anyone interested in finance, economics, psychology, and self-improvement.
The book is divided into several sections that explain different dimensions of time and its value. Chancellor has provided extensive research that is presented in an easy-to-understand way, making the book accessible for readers of all backgrounds. He provides examples of famous personalities throughout history who have recognized the value of time and how they managed it to achieve great things.
One of the great things about this book is that it encourages readers to reflect on their use of time and how it can impact their lives in significant ways. It has great insights into human behavior and how our perception of time has changed over the years. The analysis offered by the book examines how changes in the economy and society have affected the value of time.
Chancellor does a great job of showing how time affects various aspects of our lives, and how understanding the value of time can lead us to make wiser decisions about our finance, work, and personal lives. The book offers a comprehensive view of time as a valuable resource that we should be mindful of, manage, and use effectively.
"The Price of Time" presents an excellent and engaging exploration of the importance of time management and its impact on our lives. It is highly recommended for anyone interested in finance, economics, psychology, and self-improvement.
October 26, 2023
«If the emergence of interest to incentivize lending is the most significant of all innovations in the history of finance, then the advent of negative interest might be considered the second most significant, possibly the stupidest, and certainly the strangest innovation in the history of finance.»
Mye nærmere en firer enn en toer. Jeg må nok tilbake til denne om ti års tid når jeg kan mye mer om dette, for denne ble tung. Ikke tungt skrevet som sådan, men tettpakket, og den forventer et visst kunnskapsnivå av leseren som jeg stort sett ikke kunne stille med.
Som en historiebok om konseptet renter taper den glatt mot «Debt: the first 5,000 years» som jeg helhjertet anbefaler, men The Price of Time går lengre i å mene mye om sentralbankenes gjøren og laden etter finanskrisen, og omsider også under koronaen, noe jeg satte veldig pris på.
Og konseptet om at renter ikke bare er prisen på penger, men strengt tatt prisen på tid, vil jeg ta med meg videre i livet.
Mye nærmere en firer enn en toer. Jeg må nok tilbake til denne om ti års tid når jeg kan mye mer om dette, for denne ble tung. Ikke tungt skrevet som sådan, men tettpakket, og den forventer et visst kunnskapsnivå av leseren som jeg stort sett ikke kunne stille med.
Som en historiebok om konseptet renter taper den glatt mot «Debt: the first 5,000 years» som jeg helhjertet anbefaler, men The Price of Time går lengre i å mene mye om sentralbankenes gjøren og laden etter finanskrisen, og omsider også under koronaen, noe jeg satte veldig pris på.
Og konseptet om at renter ikke bare er prisen på penger, men strengt tatt prisen på tid, vil jeg ta med meg videre i livet.
August 29, 2023
3.5 stars. In many places, piercingly insightful (particularly on China, and in unraveling the thinking behind the various experiments monetary policymakers have embarked on). Deductions for the middle portion of ~150pgs focused on all the different ways post 2008 crisis-response policies have distorted every aspect of economics and life. While these arguments largely made sense, this part felt especially repetitive and was a slog to get through for my unenlightened and unappreciative mind. Regardless, a good and worthwhile read.
March 5, 2025
Who is this for ? You’d already know most of it if you’re into economics, or you’d end up not understanding a thing as an amateur. It’s not only for its lack of explanations but rather the roughness of the manuscript that fails to engage the reader through an unstructured set of unrelated chapters.
In the end, the “price of time” is merely a catchphrase to enter a non-critical description of the western economic system by an expert not bothered to make the topic accessible to anyone but his own crowd.
In the end, the “price of time” is merely a catchphrase to enter a non-critical description of the western economic system by an expert not bothered to make the topic accessible to anyone but his own crowd.
August 15, 2024
readable for those not too familiar with finance jargon! i enjoyed how chancellor used historical examples and anecdotes chronologically to describe certain phenomena with interest rates. also very relevant as of now with current events!
great to get a broad understanding of just financial systems and thier relationships with debt and interest rates.
great to get a broad understanding of just financial systems and thier relationships with debt and interest rates.
October 8, 2024
It's a really interesting book about them financial history with a heavy focus on interest rates and how that affects everything else! Also how interest rates is used to control the financial situation based on lots of other metrics.
Did not get 5 because it's quite heavy with not much background, but the understanding one receives about interests from this book is enormous!
Did not get 5 because it's quite heavy with not much background, but the understanding one receives about interests from this book is enormous!
May 25, 2025
Much much longer than it needs to be. Can only recommended if you have great interest in monetary policy. The history of interest section was good, and the author’s thesis that interest rates were too low from 2009-2021, which caused an asset bubble that kept dying companies alive and inflated real estate, but the text could’ve been accomplished in a pamphlet rather than a longer text.
January 12, 2025
Slow start but very interesting post-war and onwards
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