Central Banks
The History of Interest Rates Over 670 Years
The History of Interest Rates Over 670 Years
Today, we live in a low-interest-rate environment, where the cost of borrowing for governments and institutions is lower than the historical average. It is easy to see that interest rates are at generational lows, but did you know that they are also at 670-year lows?
This week’s chart outlines the interest rates attached to loans dating back to the 1350s. Take a look at the diminishing history of the cost of debt—money has never been cheaper for governments to borrow than it is today.
The Birth of an Investing Class
Trade brought many good ideas to Europe, while helping spur the Renaissance and the development of the money economy.
Key European ports and trading nations, such as the Republic of Genoa or the Netherlands during the Renaissance period, help provide a good indication of the cost of borrowing in the early history of interest rates.
The Republic of Genoa: 4-5 year Lending Rate
Genoa became a junior associate of the Spanish Empire, with Genovese bankers financing many of the Spanish crown’s foreign endeavors.
Genovese bankers provided the Spanish royal family with credit and regular income. The Spanish crown also converted unreliable shipments of New World silver into capital for further ventures through bankers in Genoa.
Dutch Perpetual Bonds
A perpetual bond is a bond with no maturity date. Investors can treat this type of bond as an equity, not as debt. Issuers pay a coupon on perpetual bonds forever, and do not have to redeem the principal—much like the dividend from a blue-chip company.
By 1640, there was so much confidence in Holland’s public debt, that it made the refinancing of outstanding debt with a much lower interest rate of 5% possible.
Dutch provincial and municipal borrowers issued three types of debt:
- Promissory notes (Obligatiën): Short-term debt, in the form of bearer bonds, that was readily negotiable
- Redeemable bonds (Losrenten): Paid an annual interest to the holder, whose name appeared in a public-debt ledger until the loan was paid off
- Life annuities (Lijfrenten): Paid interest during the life of the buyer, where death cancels the principal
Unlike other countries where private bankers issued public debt, Holland dealt directly with prospective bondholders. They issued many bonds of small coupons that attracted small savers, like craftsmen and often women.
Rule Britannia: British Consols
In 1752, the British government converted all its outstanding debt into one bond, the Consolidated 3.5% Annuities, in order to reduce the interest rate it paid. Five years later, the annual interest rate on the stock dropped to 3%, adjusting the stock as Consolidated 3% Annuities.
The coupon rate remained at 3% until 1888, when the finance minister converted the Consolidated 3% Annuities, along with Reduced 3% Annuities (1752) and New 3% Annuities (1855), into a new bond─the 2.75% Consolidated Stock. The interest rate was further reduced to 2.5% in 1903.
Interest rates briefly went back up in 1927 when Winston Churchill issued a new government stock, the 4% Consols, as a partial refinancing of WWI war bonds.
American Ascendancy: The U.S. Treasury Notes
The United States Congress passed an act in 1870 authorizing three separate consol issues with redemption privileges after 10, 15, and 30 years. This was the beginning of what became known as Treasury Bills, the modern benchmark for interest rates.
The Great Inflation of the 1970s
In the 1970s, the global stock market was a mess. Over an 18-month period, the market lost 40% of its value. For close to a decade, few people wanted to invest in public markets. Economic growth was weak, resulting in double-digit unemployment rates.
The low interest policies of the Federal Reserve in the early ‘70s encouraged full employment, but also caused high inflation. Under new leadership, the central bank would later reverse its policies, raising interest rates to 20% in an effort to reset capitalism and encourage investment.
Looking Forward: Cheap Money
Since then, interest rates set by government debt have been rapidly declining, while the global economy has rapidly expanded. Further, financial crises have driven interest rates to just above zero in order to spur spending and investment.
It is clear that the arc of lending bends towards ever-decreasing interest rates, but how low can they go?
Central Banks
$69 Trillion of World Debt in One Infographic
What share of government world debt does each country owe? See it all broken down in this stunning visualization.
$69 Trillion of World Debt in One Infographic
Two decades ago, total government debt was estimated to sit at $20 trillion.
Since then, according to the latest figures by the IMF, the number has ballooned to $69.3 trillion with a debt to GDP ratio of 82% — the highest totals in human history.
Which countries owe the most money, and how do these figures compare?
The Regional Breakdown
Let’s start by looking at the continental level, to get an idea of how world debt is divided from a geographical perspective:
| Region | Debt to GDP | Gross Debt (Millions of USD) | % of Total World Debt |
|---|---|---|---|
| World | 81.8% | $69,298 | 100.0% |
| Asia and Pacific | 79.8% | $24,120 | 34.8% |
| North America | 100.4% | $23,710 | 34.2% |
| Europe | 74.2% | $16,225 | 23.4% |
| South America | 75.0% | $2,699 | 3.9% |
| Africa | 56.9% | $1,313 | 1.9% |
| Other | 37.1% | $1,231 | 1.8% |
In absolute terms, over 90% of global debt is concentrated in North America, Asia Pacific, and Europe — meanwhile, regions like Africa, South America, and other account for less than 10%.
This is not surprising, since advanced economies hold most of the world’s debt (about 75.4%), while emerging or developing economies hold the rest.
World Debt by Country
Now let’s look at individual countries, according to data released by the IMF in October 2019.
It’s worth mentioning that the following numbers are representative of 2018 data, and that for a tiny subset of countries (i.e. Syria) we used the latest available numbers as an estimate.
| Rank | Country | Debt to GDP | Gross Debt ($B) | % of World Total |
|---|---|---|---|---|
| #1 | 🇺🇸 United States | 104.3% | $21,465 | 31.0% |
| #2 | 🇯🇵 Japan | 237.1% | $11,788 | 17.0% |
| #3 | 🇨🇳 China, People's Republic of | 50.6% | $6,764 | 9.8% |
| #4 | 🇮🇹 Italy | 132.2% | $2,744 | 4.0% |
| #5 | 🇫🇷 France | 98.4% | $2,736 | 3.9% |
| #6 | 🇬🇧 United Kingdom | 86.8% | $2,455 | 3.5% |
| #7 | 🇩🇪 Germany | 61.7% | $2,438 | 3.5% |
| #8 | 🇮🇳 India | 68.1% | $1,851 | 2.7% |
| #9 | 🇧🇷 Brazil | 87.9% | $1,642 | 2.4% |
| #10 | 🇨🇦 Canada | 89.9% | $1,540 | 2.2% |
| #11 | 🇪🇸 Spain | 97.1% | $1,386 | 2.0% |
| #12 | 🇲🇽 Mexico | 53.6% | $655 | 0.9% |
| #13 | 🇰🇷 Korea, Republic of | 37.9% | $652 | 0.9% |
| #14 | 🇦🇺 Australia | 41.4% | $588 | 0.8% |
| #15 | 🇧🇪 Belgium | 102.0% | $543 | 0.8% |
| #16 | Netherlands | 52.4% | $479 | 0.7% |
| #17 | Argentina | 86.1% | $447 | 0.6% |
| #18 | Singapore | 113.6% | $414 | 0.6% |
| #19 | Greece | 184.9% | $404 | 0.6% |
| #20 | Austria | 73.8% | $337 | 0.5% |
| #21 | Indonesia | 30.1% | $308 | 0.4% |
| #22 | Portugal | 120.1% | $289 | 0.4% |
| #23 | Poland | 48.9% | $286 | 0.4% |
| #24 | Switzerland | 40.5% | $286 | 0.4% |
| #25 | Ireland | 63.7% | $244 | 0.4% |
| #26 | Russian Federation | 14.6% | $242 | 0.3% |
| #27 | Turkey | 30.2% | $233 | 0.3% |
| #28 | Egypt | 92.7% | $231 | 0.3% |
| #29 | Pakistan | 71.7% | $226 | 0.3% |
| #30 | Israel | 60.8% | $225 | 0.3% |
| #31 | Sweden | 38.5% | $214 | 0.3% |
| #32 | Thailand | 42.1% | $213 | 0.3% |
| #33 | South Africa | 56.7% | $209 | 0.3% |
| #34 | Taiwan Province of China | 35.1% | $207 | 0.3% |
| #35 | Malaysia | 55.6% | $199 | 0.3% |
| #36 | Venezuela | 182.4% | $180 | 0.3% |
| #37 | Norway | 40.0% | $174 | 0.3% |
| #38 | Colombia | 52.2% | $173 | 0.2% |
| #39 | Finland | 59.3% | $163 | 0.2% |
| #40 | Saudi Arabia | 19.0% | $149 | 0.2% |
| #41 | Iran | 32.2% | $144 | 0.2% |
| #42 | Vietnam | 55.6% | $134 | 0.2% |
| #43 | Philippines | 38.9% | $129 | 0.2% |
| #44 | Denmark | 34.3% | $121 | 0.2% |
| #45 | Hungary | 70.8% | $114 | 0.2% |
| #46 | Iraq | 49.3% | $111 | 0.2% |
| #47 | Nigeria | 27.3% | $109 | 0.2% |
| #48 | Bangladesh | 34.0% | $98.1 | 0.14% |
| #49 | Angola | 89.0% | $94.3 | 0.14% |
| #50 | Qatar | 48.6% | $93.0 | 0.13% |
| #51 | Romania | 36.7% | $87.9 | 0.13% |
| #52 | Lebanon | 151.0% | $85.1 | 0.12% |
| #53 | Czech Republic | 32.6% | $79.9 | 0.12% |
| #54 | United Arab Emirates | 19.1% | $79.1 | 0.11% |
| #55 | Ukraine | 60.2% | $78.8 | 0.11% |
| #56 | Morocco | 65.0% | $77.0 | 0.11% |
| #57 | Chile | 25.6% | $76.3 | 0.11% |
| #58 | Sri Lanka | 83.3% | $74.1 | 0.11% |
| #59 | Sudan | 212.1% | $72.7 | 0.10% |
| #60 | Algeria | 38.3% | $66.5 | 0.10% |
| #61 | New Zealand | 29.8% | $60.5 | 0.09% |
| #62 | Peru | 26.1% | $58.8 | 0.08% |
| #63 | Puerto Rico | 55.5% | $56.1 | 0.08% |
| #64 | Kenya | 60.1% | $52.8 | 0.08% |
| #65 | Slovak Republic | 48.9% | $52.1 | 0.08% |
| #66 | Ecuador | 45.8% | $49.6 | 0.07% |
| #67 | Ethiopia | 61.0% | $49.0 | 0.07% |
| #68 | Croatia | 74.6% | $45.4 | 0.07% |
| #69 | Dominican Republic | 50.5% | $43.2 | 0.06% |
| #70 | Oman | 53.4% | $42.3 | 0.06% |
| #71 | Jordan | 94.4% | $39.9 | 0.06% |
| #72 | Ghana | 59.3% | $38.9 | 0.06% |
| #73 | Slovenia | 70.4% | $38.1 | 0.05% |
| #74 | Uruguay | 63.5% | $37.9 | 0.05% |
| #75 | Kazakhstan | 21.0% | $36.3 | 0.05% |
| #76 | Bahrain | 94.7% | $35.7 | 0.05% |
| #77 | Costa Rica | 53.5% | $32.3 | 0.05% |
| #78 | Tunisia | 77.0% | $30.7 | 0.04% |
| #79 | Belarus | 47.8% | $28.5 | 0.04% |
| #80 | Serbia | 54.5% | $27.5 | 0.04% |
| #81 | Myanmar | 38.2% | $26.2 | 0.04% |
| #82 | Panama | 39.5% | $25.7 | 0.04% |
| #83 | Cyprus | 102.5% | $25.1 | 0.04% |
| #84 | Côte d'Ivoire | 53.2% | $22.9 | 0.03% |
| #85 | Bolivia | 53.8% | $21.8 | 0.03% |
| #86 | Tanzania | 37.3% | $21.2 | 0.03% |
| #87 | Zambia | 78.1% | $20.9 | 0.03% |
| #88 | Kuwait | 14.7% | $20.8 | 0.03% |
| #89 | Guatemala | 24.7% | $19.4 | 0.03% |
| #90 | Lithuania | 34.2% | $18.2 | 0.03% |
| #91 | Syria | 30.0% | $18.0 | 0.03% |
| #92 | Yemen | 64.8% | $17.9 | 0.03% |
| #93 | El Salvador | 67.1% | $17.5 | 0.03% |
| #94 | Cameroon | 39.1% | $15.1 | 0.02% |
| #95 | Luxembourg | 21.4% | $14.9 | 0.02% |
| #96 | Jamaica | 94.4% | $14.6 | 0.02% |
| #97 | Senegal | 61.6% | $14.5 | 0.02% |
| #98 | Mozambique | 99.8% | $14.4 | 0.02% |
| #99 | Bulgaria | 20.4% | $13.3 | 0.02% |
| #100 | Latvia | 35.9% | $12.5 | 0.02% |
| #101 | Turkmenistan | 29.1% | $11.9 | 0.02% |
| #102 | Uganda | 41.4% | $11.6 | 0.02% |
| #103 | Albania | 69.9% | $10.5 | 0.02% |
| #104 | Uzbekistan | 20.6% | $10.4 | 0.02% |
| #105 | Lao P.D.R. | 57.2% | $10.4 | 0.01% |
| #106 | Gabon | 60.7% | $10.2 | 0.01% |
| #107 | Congo, Republic of | 87.8% | $10.2 | 0.01% |
| #108 | Trinidad and Tobago | 45.1% | $10.2 | 0.01% |
| #109 | Iceland | 37.6% | $9.8 | 0.01% |
| #110 | Honduras | 40.2% | $9.6 | 0.01% |
| #111 | Mauritius | 66.2% | $9.4 | 0.01% |
| #112 | Paraguay | 21.5% | $9.0 | 0.01% |
| #113 | Azerbaijan | 18.8% | $8.8 | 0.01% |
| #114 | Nepal | 30.2% | $8.8 | 0.01% |
| #115 | Papua New Guinea | 35.5% | $8.2 | 0.01% |
| #116 | Bahamas, The | 63.3% | $7.9 | 0.01% |
| #117 | Zimbabwe | 37.1% | $7.8 | 0.01% |
| #118 | Georgia | 44.9% | $7.3 | 0.01% |
| #119 | Congo, Dem. Rep. of the | 15.3% | $7.2 | 0.01% |
| #120 | Cambodia | 28.6% | $7.0 | 0.01% |
| #121 | Bosnia and Herzegovina | 34.3% | $6.9 | 0.01% |
| #122 | Namibia | 45.8% | $6.6 | 0.01% |
| #123 | Malta | 45.2% | $6.6 | 0.01% |
| #124 | Mali | 37.3% | $6.4 | 0.01% |
| #125 | Barbados | 125.7% | $6.4 | 0.01% |
| #126 | Armenia | 51.3% | $6.4 | 0.01% |
| #127 | Burkina Faso | 42.9% | $6.1 | 0.01% |
| #128 | Equatorial Guinea | 43.3% | $5.9 | 0.01% |
| #129 | Benin | 41.0% | $5.9 | 0.01% |
| #130 | Madagascar | 45.7% | $5.5 | 0.01% |
| #131 | Chad | 48.3% | $5.3 | 0.01% |
| #132 | North Macedonia | 40.5% | $5.1 | 0.01% |
| #133 | Niger | 53.8% | $5.0 | 0.01% |
| #134 | Nicaragua | 37.2% | $4.9 | 0.01% |
| #135 | Guinea | 38.2% | $4.6 | 0.01% |
| #136 | Kyrgyz Republic | 56.0% | $4.5 | 0.01% |
| #137 | Mauritania | 82.9% | $4.3 | 0.01% |
| #138 | Malawi | 62.9% | $4.3 | 0.01% |
| #139 | Togo | 76.2% | $4.1 | 0.01% |
| #140 | Montenegro | 72.6% | $4.0 | 0.01% |
| #141 | Rwanda | 40.7% | $3.9 | 0.01% |
| #142 | Maldives | 68.0% | $3.6 | 0.01% |
| #143 | Tajikistan | 47.9% | $3.6 | 0.01% |
| #144 | Eritrea | 174.3% | $3.5 | 0.01% |
| #145 | Moldova | 29.7% | $3.4 | 0.00% |
| #146 | Haiti | 33.3% | $3.2 | 0.00% |
| #147 | Bhutan | 102.4% | $2.6 | 0.00% |
| #148 | Sierra Leone | 63.0% | $2.6 | 0.00% |
| #149 | Estonia | 8.3% | $2.6 | 0.00% |
| #150 | Fiji | 46.2% | $2.6 | 0.00% |
| #151 | Suriname | 72.8% | $2.5 | 0.00% |
| #152 | Cabo Verde | 124.5% | $2.5 | 0.00% |
| #153 | Aruba | 84.5% | $2.4 | 0.00% |
| #154 | Botswana | 12.1% | $2.3 | 0.00% |
| #155 | Guyana | 52.9% | $2.1 | 0.00% |
| #156 | Burundi | 58.4% | $2.0 | 0.00% |
| #157 | South Sudan, Republic of | 42.2% | $1.9 | 0.00% |
| #158 | Belize | 95.2% | $1.8 | 0.00% |
| #159 | Eswatini | 35.2% | $1.7 | 0.00% |
| #160 | Antigua and Barbuda | 89.5% | $1.4 | 0.00% |
| #161 | Gambia, The | 86.6% | $1.4 | 0.00% |
| #162 | Djibouti | 48.0% | $1.4 | 0.00% |
| #163 | Afghanistan | 6.9% | $1.4 | 0.00% |
| #164 | Kosovo | 17.0% | $1.4 | 0.00% |
| #165 | Liberia | 39.9% | $1.3 | 0.00% |
| #166 | San Marino | 77.9% | $1.3 | 0.00% |
| #167 | Saint Lucia | 64.3% | $1.2 | 0.00% |
| #168 | Lesotho | 44.5% | $1.2 | 0.00% |
| #169 | Central African Republic | 49.9% | $1.1 | 0.00% |
| #170 | Guinea-Bissau | 64.3% | $0.9 | 0.00% |
| #171 | Seychelles | 56.9% | $0.9 | 0.00% |
| #172 | Grenada | 63.5% | $0.8 | 0.00% |
| #173 | Saint Vincent and the Grenadines | 74.5% | $0.6 | 0.00% |
| #174 | Saint Kitts and Nevis | 60.5% | $0.6 | 0.00% |
| #175 | Vanuatu | 51.4% | $0.5 | 0.00% |
| #176 | Samoa | 50.3% | $0.4 | 0.00% |
| #177 | Dominica | 74.1% | $0.4 | 0.00% |
| #178 | Hong Kong SAR | 0.1% | $0.4 | 0.00% |
| #179 | Brunei Darussalam | 2.6% | $0.4 | 0.00% |
| #180 | São Tomé and Príncipe | 74.5% | $0.3 | 0.00% |
| #181 | Comoros | 21.0% | $0.2 | 0.00% |
| #182 | Timor-Leste | 6.1% | $0.2 | 0.00% |
| #183 | Solomon Islands | 9.4% | $0.1 | 0.00% |
| #184 | Micronesia, Fed. States of | 20.3% | $0.1 | 0.00% |
| #185 | Nauru | 58.3% | $0.1 | 0.00% |
| #186 | Marshall Islands | 25.2% | $0.1 | 0.00% |
| #187 | Kiribati | 20.6% | $0.0 | 0.00% |
| #188 | Tuvalu | 28.1% | $0.0 | 0.00% |
In absolute terms, the most indebted nation is the United States, which has a gross debt of $21.5 trillion according to the IMF as of 2018.
If you’re looking for a more precise figure for 2019, the U.S. government’s “Debt to the Penny” dataset puts the amount owing to exactly $23,015,089,744,090.63 as of November 12, 2019.
Of course, the U.S. is also the world’s largest economy in nominal terms, putting the debt to GDP ratio at 104.3%
Other stand outs from the list above include Japan, which has the highest debt to GDP ratio (237.1%), and China , which has increased government debt by almost $2 trillion in just the last two years. Meanwhile, the European economies of Italy and Belgium check the box as other large debtors with ratios topping 100% debt to GDP.
Central Banks
The Silver Series: The Start of A New Gold-Silver Cycle (Part 1 of 3)
As the decade-long bull run shows signs of slowing, is it time for precious metals to shine? Here’s why it could be the start of a new gold-silver cycle.
The world has experienced a decade of growth fueled by record-low interest rates, a burgeoning money supply, and historic debt levels – but the good times only last so long.
As the global economy slows and eventually begins to retract, can precious metals offer a useful store of value to investors?
Part 1: The Start of a New Cycle
Today’s infographic comes to us from Endeavour Silver, and it outlines some key indicators that precede a coming gold-silver cycle in which exposure to hard assets may help to protect wealth.
Bankers Blowing Bubbles
Since 2008, central bankers around the world launched a historic market intervention by printing money and bailing out major banks. With cheap and abundant money, this strategy worked so well that it created a bull market in every sector — except for precious metals.
Stock markets, consumer lending, and property values surged. Meanwhile, the U.S. Federal Reserve’s assets ballooned, and so did corporate, government, and household debt. By 2018, total debt reached almost $250 trillion worldwide.
Currency vs. Precious Metals
The world awash in unprecedented amounts of currency, and these dollars chase a limited supply of goods. Historically speaking, it’s only a matter of time before the price of goods increases or inflates – eroding the purchasing power of every dollar.
Gold and silver are some of the only assets unaffected by inflation, retaining their value.
Gold and silver are money… everything else is credit.
– J.P. Morgan
The Perfect Story for a Gold-Silver Cycle?
Investors can use several indicators to gauge the beginning of the gold-silver cycle:
- Gold/Silver Futures
Most traders do not trade physical gold and silver, but paper contracts with the promise to buy at a future price. Every week, U.S. commodity exchanges publish the Commitment of Traders “COT” report. This report summarizes the positions (long/short) of traders for a particular commodity.
Typically, speculators are long and commercial traders are short the price of gold and silver. However, when speculators and commercial traders positions reach near zero, there is usually a big upswing in the price of silver.
- Gold-to-Silver Ratio Compression
As the difference between gold and silver prices decreases (i.e. the compression of the ratio), history suggests silver prices can make big moves upwards in price. The gold-to-silver ratio compression is now at high levels and may eventually revert to its long-term average, which implies a strong movement in prices is imminent for silver.
- Scarcity: Declining Silver Production
Silver production has been declining despite its growing importance as a safe haven hedge, as well as its use in industrial applications and renewable technologies.
- The Silver Exception
Silver is not just for coins, bars, jewelry and the family silverware. It stands out from gold with its practical industrial uses which account for 56.1% of its annual consumption. Silver will continue to be a critical material in solar technology. While photovoltaics currently account for 8% of annual silver consumption, this is set to change with the dramatic increase in the use of solar technologies.
The Price of Gold and Silver
Forecasting the exact price of gold and silver is not a science, but there are clear signs that point to the direction their prices will head. The prices of gold and silver do not accurately reflect a world awash with cheap and easy money, but now may be their time to shine.
Don’t miss another part of the Silver Series by connecting with Visual Capitalist.
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