What’s the most important price in the global economy? The price of oil? The price of semiconductors? The price of a Big Mac? More important than any of these is the price of money. For more than three decades it was falling, but now it’s set to rise. In the mini-documentary The Rising Cost of Money, Bloomberg Originals explains why this is happening—and what it means for you.
Ask most people how the price of money is set, and they’ll say via interest rates determined by central banks like the US Federal Reserve. In fact, there’s a deeper logic at work. Fundamentally, the price of money (like the price of anything else) reflects the balance of supply and demand. A higher supply of savings pushes rates down. More investment demand pushes them up.
For the economics wonks, the price of money that balances saving and investment while keeping inflation stable has another name—the “natural rate of interest.” For more than three decades, this rate was trending down. By Bloomberg Economics’ estimates, and adjusting for inflation, the natural rate of interest for 10-year US government bonds fell from a little more than 5% in 1980 to a little less than 2% over the past decade.
In The Rising Cost of Money, we explain what drove the rate lower, what’s about to reverse its decline and what that means for everything from home prices to the stock market and the sustainability of US government debt.
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