| Without wading into the larger debate, is it possible that low stable interest rates are expected in a successful society? In a chaotic world where the government and property rights might not exist in five years, the time-value of money is high, because the enjoyment of that money in the future is uncertain. A house might only be worth five times the annual rent, because some warlord could steal it in five years. And a bond might pay 20% for similar reasons. The interest rate, cap rate, or P/E ratio I'm willing to tolerate for an asset is closely related to my level of confidence in future economic stability (combined with my willingness to wait a long time to recoup my investment). What if a low natural rate of interest is just a sign of a more advanced economy where people are thinking long-term? This lines up, I think, with the fact that super low yield bonds and 100 year mortgages are common in Europe. Why should the owners of capital automatically double their money in just ten years? Maybe we have enough capital to go around already. It seems like the owners of capital are willing to invest with much lower returns these days because there is nothing else to do. I'm just musing about what it means. I've considered buying a house to live in with a price-to-rent ratio of 25 years. This is a lot higher than the US average, but maybe that's not a bad thing? Even if the value stops increasing, I'm patient, and I have nothing better to do with the money other than rent a nicer place. This is a mix of FOMO (if I don't buy now, I won't be able to afford later) and anti-FOMO (if the price goes down in a correction, I could buy an even nicer house, but this one is nice enough already). |