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James Sogi

9/24/04
Long-Term Interest Rates

In Babylon, Mesopotamia, c. 1750 BC, the Code of Hammurabi provided for a loan of wheat bearing a 33% rate due to risks of spoilage and cancellation of debt, and a loan of silver 15%.

At the height of the Roman empire in 100 AD, interest rates hit 4%. Roman military commitments, rising taxes, and inflation and the attendant rise of interest rates and loss of liquidity eventually resulted in the bankruptcy and downfall of the empire.

In the 12th century rates were back up to 40%.

At the height of the Dutch capital markets in Amsterdam in 1655 government interest rates again hit a 4% low.

Back then default meant forfeiting one's entire estate and freedom, and slavery for life for you and your family, so there was some good security. (See Bernstein, The Birth of Plenty.)

Interest rates are an important determinant and reflection of the course of capital markets and the overall social and economic situation. Four percent seems to be an important number historically. Ten-year Treasuries have crossed 4% a number of times during 1962/63 and again about 40 years later in 2002-04.

Sometimes a long-term view of 5,000 years helps take the mind off each tick on a nice fall Friday afternoon.


Since 1962 the average rate has been 7.3% with a standard deviation of 2.5.


Fed data (10-year note)

YearRateYearRateYearRateYearRate
19623.9519736.85198412.4619956.57
19634.0019747.56198510.6219966.44
19644.1919757.9919867.6719976.35
19654.2819767.6119878.3919985.26
19664.9319777.4219888.8519995.65
19675.0719788.4119898.4920006.03
19685.6419799.4319908.5520015.02
19696.67198011.4319917.8620024.61
19707.35198113.9219927.0120034.01
19716.16198213.0119935.87
19726.21198311.119947.09

 

 

James Sogi is a philosopher, Juris Doctor, surfer, trader, investor, musician, black belt, sailor, semi-centenarian. He lives on the mountain in Kona, Hawaii, with his family