Q&A: Understanding changes in real interest rates is crucial

Woody Brock  |  SED  |  21 March 2022

Real US Treasury yields collapsed from 7% to -6% between 1981 and 2021, yet most economic commentators fail to understand why. Using supply/demand analysis, it can be seen that the decline in US real rates was driven by an increased supply of and reduced demand for investment capital. Inflows from offshore bank accounts, rising household wealth, and soaring corporate profits contributed to greater supply of investment capital. Meanwhile, the shift to a services-based economy and falling birth rates weighed on the demand for investment capital. For practitioners, understanding changes in ...

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