Interest rates were 20% in Ancient Sumer & Babylon.
In those times, the average lifespan was 28-30. So you had little time to pay your loan back.
Nowadays the average person lives a least twice as long, so has much longer to repay; plus developed legal systems provide recourse to your estate's assets if you die indebted. So your lender needs less interest as borrowers are less risky.
So could lower interest rates today (irrespective of CB's/QE) be a function of longer life-expectancy - especially in rich, indebted countries?
This paper covers it in terms of recent history and in terms of propensity to save. But surely longer life-spans (in terms of recourse) are a factor.
Under the broad term “demographics” are a few key drivers, each of which has a different effect on interest rates. Of all the drivers that structurally influence rates, demographics are the most interesting today because several longstanding trends are stalling or reversing.
Life expectancy—In general, as life expectancies rise, people choose to save more throughout their working lives to fund longer retirements. Those higher savings rates pressure interest rates lower. As life expectancies have risen in recent decades, they’ve pushed rates down.
Fertility—Falling fertility rates work differently but have also pushed rates lower. Lower fertility rates increase the capital-to-labor ratio in an economy, which makes incremental capital less valuable and in turn lowers the demand for funds, and with it, interest rates.
Population growth—Changes in life expectancy and... (More)