Wahed Ismail

Learning history about money, financial markets and blockchain

[Wahed Ismail @WahedCryp]

Delighted to share a summary of this EXCELLENT book

The Price of Time: The Real Story of Interest by Edward Chancellor is a comprehensive critique of the low and negative interest rate policies pursued by central banks in the 21st century.

Edward Chancellor’s begins with noting that Mesopotamians charged interest on loans before putting wheels on carts. Ancient interest which predates coined money—on corn and livestock loans was reflected in language that associates borrowing costs with what they produce

A significant focus of the book is on the recent era of artificially managed, low interest rates. While the argument for quantitative easing has been consistently made for over 400 years, the cheap-money era truly started with Greenspan in USA spreading across to Japan. Post the dot-com bubble burst, cheap-money became endemic across the world as governments tried to avoid a recession at all costs.

Chancellor presents multiples examples from history, the Mississippi Scheme, South Sea Bubble, Foreign Bonds mania, etc, that indicate that periods of financial recklessness do not occur at random. They have been found to be unequivocally linked to easy-money and low interest rates.

The low rates led to rising indebtedness and hence need to keep rates low going forward. What was meant to be a mechanism to boost the economy, for the most parts remained a mechanism to boost the markets and asset owners, thereby further skewing the income and wealth inequality across the world.
When money became cheap, companies loaded up on debt not to invest in their future, but to fund massive stock buybacks. This starved ongoing operations, capital investment, and research and development. So instead of companies building things or innovating, they were just playing financial engineering games. The cheap debt also enabled debt-fueled acquisitions that increased industry concentration, which ultimately hurts consumers through less competition.

It explains how keeping interest rates below the inflation rate called "financial repression" systematically erodes people's savings. Your grandmother's savings account earning 0.1% while inflation runs at 3%? is financial repression in action.

At the end of the day, Chancellor's message is pretty straightforward: there's no such thing as a free lunch. Interest rates exist for a reason they're supposed to tell us what money is actually worth over time. When we mess with that signal, we don't eliminate the problems; we just push them down the road and make them worse.📷

[Wahed Ismail @WahedCryp]

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