Global Real Interest Rates – Charts Updated for 27/7/11

An update of the global real interest rate charts for 27/7/11. The important markets of the world continue to display negative real interest rates, however we’re starting to see improvements in various pockets of the world.

 

[EDIT: For up-to-date real interest rate charts see here.]

 

[Note: By ‘real‘ interest rates, we mean the short-term inter-bank rate minus the year-on-year growth in the consumer price index.]

 

Long-term & Short-term Real Fed Funds Rate:

 

Long Term Real Fed Funds Interest Rate Chart

Long Term Real Fed Funds Rate - Click to enlarge. Source: St Louis Fed

 

The US tends to go through long-term generational cycles where the real fed funds rate fluctuates from being consistently positive, to only intermittently positive (if that). During the long periods where the real fed funds rate remains positive, the banking systems tend to draw in large amounts of central bank notes for long periods of time. During these periods, banks have the platform to expand their activities (i.e. engage in increasingly aggressive fractional-reserve banking). As this process gains momentum, debt tends to accumulate and the supply of ‘claims upon central bank notes‘ (i.e. deposits: — what most people call ‘money’) increases rapidly.

 

However, eventually the economy reaches a maximum capacity for leverage, and the house of cards tends towards collapse. Thus, central banks engage in easy monetary policy in order to stave off a significant collapse in the stock of ‘IOU claims upon central bank notes’.  During these periods, the real fed funds rate tends to be only intermittently positive (if that!) and the money creation process goes into reverse (as deposits become decreasingly appetising).

 

As can be seen from the long-term chart of the real fed funds rate (above), we are in the latter portion of the generational cycle. The real fed funds rate has been only intermittently positive for the past 10 years. Moreover, zooming in to the shorter-term timeframe (see chart below), we can see that we are currently in one of the most onerous periods of this long-term cycle in the real fed funds rate.

 

Short Term Real Fed Funds Interest Rate Chart

Short Term Real Fed Funds Rate - Click to enlarge. Source: St Louis Fed

 

Developed Countries:

 

With the exception of Norway (and, to some extent, Switzerland), real interest rates in the developed world remain negative and pointing downwards. We interpret this as bearish because of the huge legacy of debt in these countries.

 

US Real Interest Rate Chart

US - Click to enlarge. Source: OECD Statistics

 

Euro Area Real Interest Rate Chart

Euro Area - Click to enlarge. Source: OECD Statistics

 

Japan Real Interest Rate Chart

Japan - Click to enlarge. Source: OECD Statistics

 

UK Real Interest Rate Chart

UK - Click to enlarge. Source: OECD Statistics

 

Switzerland Real Interest Rate Chart

Switzerland - Click to enlarge. Source: OECD Statistics

 

Canada Real Interest Rate Chart

Canada - Click to enlarge. Source: OECD Statistics

 

Australia Real Interest Rate Chart

Australia - Click to enlarge. Source: OECD Statistics

 

New Zealand Real Interest Rate Chart

New Zealand - Click to enlarge. Source: OECD Statistics

 

Norway Real Interest Rate Chart

Norway - Click to enlarge. Source: OECD Statistics

 

Asia:

 

Asian real interest rates look similarly bearish. Asian currencies are reknown for the high degree to which they are ‘backed’ by dollars. We intend to write something about the implications of this soon… (so please subscribe!)

 

China Real Interest Rate Chart

China - Click to enlarge. Source: OECD Statistics

 

India Real Interest Rate Chart

India - Click to enlarge. Source: OECD Statistics

 

Indonesia Real Interest Rate Chart

Indonesia - Click to enlarge. Source: OECD Statistics

 

Korea Real Interest Rate Chart

Korea - Click to enlarge. Source: OECD Statistics

 

Eastern Europe:

 

Real interest rates in Eastern Europe remain generally negative. However, as can be seen from the charts below, they are nearing their inflection points. In recent months we have noted the weakness of this sector, and we believe that this weakness will continue over the coming months. However, it is starting to become clear that the end to this trend is somewhere along the horizon.

 

Czech. Republic Real Interest Rate Chart

Czech. Republic - Click to enlarge. Source: OECD Statistics

 

Hungary Real Interest Rate Chart

Hungary - Click to enlarge. Source: OECD Statistics

 

Poland Real Interest Rate Chart

Poland - Click to enlarge. Source: OECD Statistics

 

Russian Federation Real Interest Rate Chart

Russian Federation - Click to enlarge Source: OECD Statistics

 

Latin America:

 

Real interest rates in Latin America continue to buck the global trend.

 

Brazil Real Interest Rate Chart

Brazil - Click to enlarge. Source: OECD Statistics

 

Chile Real Interest Rate Chart

Chile - Click to enlarge. Source: OECD Statistics

 

Mexico Real Interest Rate Chart

Mexico - Click to enlarge. Source: OECD Statistics

 

 

Middle East & Africa:

 

Israel Real Interest Rate Chart

Israel - Click to enlarge. Source: OECD Statistics

 

Turkey Real Interest Rate Chart

Turkey - Click to enlarge. Source: OECD Statistics

 

South Africa Real Interest Rate Chart

South Africa - Click to enlarge. Source: OECD Statistics

See here for our collection of rare historical economic data.

Posted Jul 27, 2011