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Comment by trgn | Hacker News Reader

low rates are the default of a healthy confident economy. high rates are the default for a struggling economy.

You've got it backwards. Over a standard business cycle, a healthy, growing economy is generally correlated with higher (or rising) interest rates, while a weak or contracting economy is correlated with lower (or falling) interest rates. Bond investors demand higher interest rates when they have more confidence in the economy as they would otherwise prefer to invest in equities, and investors settle for lower rates when they have less confidence in the economy as they seek to exit equities in favor of low-risk alternatives.

> Over a standard business cycle

The long-term, as in multi-century, trend has been for interest rates to fall as capital becomes more comfortable with trusting returns to come in over longer horizons.

Has there been interest rates for multiple centuries?

Yes. It is covered in various books. Galbraith covered it in “Money…”[0] I’m not totally sure you can draw parallels to the old world, though. The modern economy seems so different, but basically, rates seem to follow the course of a civilization. IIRC, Low when things are stable, higher at the edges as things destabilize. It’s been a few years since I read the book, though, and I may be misremembering things.

[0] https://ia800605.us.archive.org/14/items/TheWorldIsFlat/Mone...

Yes, going back into antiquity. The English Crown borrowed around 14% in the 13th and 14th centuries [1]. The Roman grain markets had lending embedded, too, though nothing resembling a risk-free rate. (Monarchies borrowing had an element of coercion to them, so the rate one would lend freely to them was probably higher than the rate they contracted.)

What one can reasonably argue is that there hasn’t been a market-set risk-free rate since the Enlightenment, possibly since Bagehot and the invention of independent central banking. (Some people argue we still don’t have a risk-free rate today.)

[1] https://centaur.reading.ac.uk/16784/1/16784.pdf

dutch republic had famously low interest rates for a long time. rest of the world had erratically high interest rates. low interest rates are signs of stability, and long term trust and confidence.

a prolonged high interest rate is a sign of something structurally wrong.

It really depends, and its hard to saw what "low" vs "high" rates means. Within different economies, low could be 0, 5, or 10. Depending on where you are in the business cycle, high rates could actually signal a hot economy and low rates could mean a cold one(or trying to jump start borrowing). Low rates all the time and high rates all the time probably isn't good, its a dance.

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