It’s human nature to extrapolate the present into the distant future. That is, what prevails today will prevail tomorrow. If any change occurs, it will be gradual and predictable.

When it comes to interest rates, nothing could be further from the truth. This point is driven home in Sidney Homer’s and Richard Sylla’s fascinating book A History of Interest Rates. The book’s authors trace the history of interest rates back to 3,000 BC. The extent to which interest rates can range across geography and time is quite extraordinary.

For example, Homer and Sylla tell us that in classical Athens, money was lent at a rate of 48% per month; this sums to 576% annual interest, and that’s uncompounded. In the 12th century, loans in England were made at 52% to 120% a year, depending on the collateral, while at the same time in the Netherlands long-term loans secured by real estate were made at 8% to 10%.

The greatest range in interest rates occurred as recently as the 20th century. Rates at one time during the previous century were quoted as high as 10,000% in Berlin and 0.01% in New York for standard money-market credits.

It’s easy to get lulled into complacency, believing today’s low rates will be maintained into the deep future.  But if A History of Interest Rate tells us anything, it’s that credit markets are marked by volatility and immediate change. It’s worthwhile to keep that fact in mind if we are even lulled into believing today’s rates will exist in perpetuity.

Information provided by Jessica Regan.

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