In the 1300s, the equivalent of the today's U.S. 10-year Treasury bond was bonds issued by government borrowers in England and in cities in what is now Italy.
Some very paranoid clients may wonder whether they can even trust the U.S. government to make good on its bond payment promises. The issuers of the bonds and other debt instruments in the Schmelzing made all promised payments, although some issuers delayed interest payments in the 1400s.
Annuity sellers then had problems with plague, typhus and bloody wars, but
Schmelzing says the average risk-free inflation-adjusted rate has been about 1.3%. That's down from 2% in the 1900s, but the average in the 1900s was down from 3.4% in the 1800s, from 3.5% in the 1700s, and from 4.6% in the 1600.s
There is no reason, therefore, to expect rates to 'plateau,' to suggest that 'the global neutral rate may settle at around 1% over the medium to long run', or to proclaim that 'forecasts that the real rate will remain stuck at or below zero appear unwarranted' as some have suggested," Schmelzing writes. "With regards to policy, very low real rates can be expected to become a permanent and protracted monetary policy problem — but my evidence still does not support those that see an eventual return to 'normalized' levels however defined." In the long run, Schmelzing writes, it looks as if whatever forces are shaping interest rates will continue to shape interest rates, whatever policymakers try to do, because those forces seem to have persisted through all sorts political and economic environments. Schmelzing does not try to adjust his century — Read PPACA: A History, on ThinkAdvisor. — Connect with ThinkAdvisor Life/Health on Facebook, LinkedIn and Twitter.
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