The Destruction Wreaked by Ultra-Low Interest Rates

“I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong,
neither yet bread to the wise, nor yet riches to men of understanding,
nor yet favour to men of skill; but time and chance happeneth to them all.”


Super-bubbles in the asset markets, the rise of populism, and inequality are among a host of societal problems caused by low interest rates, according to Edward Chancellor. He explains why in his provocative new book, The Price of Time.

My favorite of the many brilliant verses in the wisdom books of the Old Testament frames the problem faced by finance. Finance, said Roger Ibbotson, is the branch of economics that deals with time and uncertainty. While finance appears extraordinarily complicated, when simplified to its barest essentials it relies on two prices: of risk and of time.

We see countless attempts to discern the price of risk all. The equity risk premium is the price of business risk – yet we can’t measure it, only give wide estimates. Insurance premiums measure the price of mortality, medical, and property risk. Betting markets can price just about any risk.

But what is the price of time? In what sense does time have a price? Why is it, of all these prices, the only one you can look up each day in the newspaper? (The price of time is the interest rate, in case you haven’t guessed by now.) And what can we learn from an intensive study of that price, across history and the extent of the globe?

Chancellor, one of the finest writers ever to turn his attention to financial markets, tackles both the deep history of interest rates and the controversies surrounding them in The Price of Time. If an investor were allowed to have only a dozen investment-related books, this would be one of them. The others would include Peter Bernstein’s Against the Gods, Matt Ridley’s The Rational Optimist, and Nassim Taleb’s Fooled by Randomness.2