[ef4]

"to drive down the price of capital?"

But that's exactly what we do see. Interest rates are absurdly low. Interest rates are the price of capital.

The fact that you can select a sample of outliers who won big on risky investments doesn't change the overall statistical situation. Most capital is still getting low returns.

[MikeCapone]

> The fact that you can select a sample of outliers who won big on risky investments doesn't change the overall statistical situation. Most capital is still getting low returns.

That's the key part. Looking at only winners doesn't tell you the whole story. It's like looking at lottery winners and saying: "Why are returns from gambling with the lotto so high?"

[malandrew]

But near as I can tell it's only getting that cheap for a very very small number of individuals. While this does bring down the cost of capital for end users, it is my impression that the retail cost of capital doesn't drop nearly as far and as fast as the commercial cost of capital for financial institutions (The recent Libor scandal seems to support this speculation). It'd be interesting to see retail rates plotted versus treasury rates.

[phillmv]

Well, interest rates and inflation. Inflation is being purposefully kept low (see: ECB, the US Fed).

[larrys]

Parent: "shouldn't supply and demand equilibrate things to drive down the price of capital?"

You: "Interest rates are absurdly low."

Interest rates are low because of government policy.

[Retric]

Interest rates globally have been dropping for a long time. Not that long ago powerful people looked at 20% annual interest rates for capital projects as low.

[HeyLaughingBoy]

Yup. I remember the early 90's when my money market funds actually returned worthwhile rates. These days I may as well put my cash under the mattress.

[larrys]

I think my first home mortgage was something like 16%. But healthcare (best plan go anywhere do anything) was only $65/m for an individual and gas was below $1. Business credit was pretty expensive to be sure.

[ccarpenterg]

Interest rates are the price of capital

I think that's inaccurate. The price of the capital is its cost of opportunity. Interest rates are the price of debt.

[chimeracoder]

No, interest rates are both. All costs are opportunity costs, so it's just two ways of looking at the same coin.

[capex]

Interest rate (ideally) = rate of inflation + the risk involved + cost of opportunity.