Hacker News Reader

Hm, but we've had zero interest rates that entire time so shouldn't we have expected even higher returns? E.g. what would the 90s have looked like with zero rates?

View on HN

Lowering rates will give a boost to the stock market in the short to medium term. In the long term, returns will settle closer to the interest rate in question (plus a risk premium). See: Japan over the last couple of decades.

It is kind of interesting how this was the core observation of Keynes. It isn't capital that dominates the markets it is money.

According to classical economics people either spend or save, there can be no such thing as indecisiveness or paralysis. What this means is that a too low interest rate would immediately cause inflation and therefore result in a higher nominal interest rate because the rate of capital formation is too slow.

In practice we haven't observed any capital shortages that weren't the result of a one off event. The interest rate appears to be the only barrier and the return on capital followed it in countries excluding the USA.

And by that thinking, if we could only manage historical averages during pronounced low interest rates, what does it say about the prospect of returns for the next few years?

Reply on news.ycombinator.com