[imtringued]

An article from 2014:

http://rootbug.com/interstellar-oikeassa-aikaan-liittyvat-ol...

>That people’s “time preference”, impatience, cannot be negative in the long run — and hence the possibility of negative real interest rates is not needed.

How does time preference become negative? Aging populations consist of people who need to work now, because they cannot work later. Alternatively, rich people at the top consider money a measure of wealth and optimize it like a high score. Third cause. Banks have written an excessive amount of money losing bonds and the money they have issued does not actually reflect the losses in the bond market (2008). In other words, people use money to isolate themselves from losses in the real economy because it is insured by the government.

I will say this: Over the long term interest rates are not set by banks, not even the central bank. It is primarily the availability of solvent borrowers. Companies essentially offer an investment opportunity to the bank and promise a fixed rate of return. The banks purpose is to price risk, effectively it is determining whether that promise is the real deal. The fact that low interest rates have not lead to inflation simply means that there are no solvent borrowers at that level of interest.

Here is a perverse fact about deflation: Once you have deflation, money itself provides a risk free rate of return that competes with labor (the thing that backs debt based money) for capital. When there is deflation there is no market mechanism that can determine an interest rate that balances credit (savings) and debt (borrowing). According to the Friedman Rule [0] the best interest rate is 0% and it is assuming no inflation or deflation. When you have deflation interest rates must become negative.

[0] https://en.wikipedia.org/wiki/Friedman_rule

[csomar]

> The fact that low interest rates have not lead to inflation simply means that there are no solvent borrowers at that level of interest.

That's where you lose me. Prices are going up for many things all over the world (including in the Tech world which used to be highly deflationary). Let's not forget that we are in a pandemic (loss of demand) and that oil prices are relatively low. Prices should have gone down. The only thing going down right now is the government CPI.

[useful]

When you have deflation, capital in general, not just money, competes with labor.

Buffet became very rich because of this fact. In the current environment, revenue, profit, growth are what drives valuations. Cigarette butt value investing? Not so much.

But what if you have deflation and/or high taxes? A building, land, machinery, yourself, etc are what you should invest in because they can be used to make money. Those who get rich in these environments are the ones that are making a bet on depreciation of capital (property, goods, etc) being less because of an increase in value or their useful life in an environment that rewards those who put their money to work.