If You’re Interested in Borrowing Money, Now Is “The Best Time in Recorded History” to Do It

Who wants to borrow some money?

Who would prefer not to borrow money, but are in a circumstance where borrowing money seems like the best option?

Either way, the Washington Post thinks you’re in luck:

This is the best time to borrow money in recorded history.

That’s right: Interest rates are lower today than they were when FDR or Napoleon or Henry VIII or Genghis Khan or Charlemagne or Julius Caesar or Alexander the Great or even Hammurabi were around. Or, if you want to put a year on it, lower than at any time since the ancient Sumerians made the first loans, payable in either silver or grain, back in 3000 B.C.

This, like the Joss Whedon story from earlier today, is another piece where I’d like more data. Interest rates on home loans? Student loans? That credit card that Old Navy keeps trying to give me?

It turns out that the WaPo is referencing real interest rates, and a speech given by Andy Haldane, chief economist at the Bank of England:

In the 1990s, [real interest rates] were around 4%. With a 2% inflation target, that meant nominal interest rates would be expected to average around 6% over the cycle. That would give more than enough room to cut interest rates to cushion recession in a typical loosening cycle. Today, global real rates are around zero.

Since I’m not super clear on what a real interest rate is — and I’m hoping I’m not the only one — I will shamefacedly present a definition from Investopedia:

For example, if you are earning 4% interest per year on the savings in your bank account, and inflation is currently 3% per year, then the real interest rate you are receiving is 1% (4% — 3% = 1%). The real value of your savings will only increase by 1% per year, when purchasing power is taken into consideration.

Okay, this makes sense now, and I understand why the WaPo and the Bank of England are both referencing “zero interest rates” even though the actual interest rate you’re paying may be higher than zero. (It also makes those less-than-one-percent savings account APYs look really, really bad.)

Why are real interest rates so low? It’s because we’ve become a nation of money hoarders, as the WaPo explains:

When people get scared, say, when a housing crash almost brings down the entire financial system, they don’t want to borrow money or lend money or do anything else with it. They just want to hoard money. The problem, though, is that if nobody is spending, then the economy will shrink — which will only make people want to put their money in super-safe places, like government bonds, rather than taking any kind of risk. Interest rates, in other words, will fall even more.

Okay, fine. But this feels like a statistical generalization that has very little to do with a lot of our day-to-day experiences. CNBC ran an article just last week reminding us that about 50 percent of Americans have no savings at all, and only 29 percent of the people surveyed had more than $1,000 in their savings account. (At the national savings account average of 0.06 APY, by the way, they’ll earn a whopping 60 cents if they can keep that $1K in their bank account for a year. I won’t even begin to calculate the real interest rate compared to inflation.)

Still, if you want to borrow money, or if you have to borrow money, you can take comfort in the fact that this is the best time in recorded history to do it.

Support The Billfold

The Billfold continues to exist thanks to support from our readers. Help us continue to do our work by making a monthly pledge on Patreon or a one-time-only contribution through PayPal.