What would interest rates be if they were set by the free market rather than the Federal Reserve? Is there a way to accurately judge what the market would be doing right now instead of the current 0% that the Fed has set?
No, I don’t suppose there is a way to calculate the natural rate of interest. It would simply be near the equilibrium point of the supply of accumulated capital and the demand for said capital for investment.
Here’s my guess: 15%, and that would be a reduction from what it was. During the 90s the natural rate of interest was probably around 30% due to massive technological improvements in the computer industry.
How do you arrive at these values?[:|]
You should see his dart board! Its legendary!
Took the rates from the 80s when Volker defeated stagflation, and then guessed, like I said. Volker set higher interest rates, but the demand for investment wasn’t as low then as it is now. But, at the same time, the savings rate was above 3%. In the 90s the savings rate was extremely low, and Greenspan kept interest rates low, inflating the dot com bubble and then the real estate bubble.
But, like I said, it’s a guess.