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NOTE 27. Interest Rates

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Interest Rates

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Sidney Homer writes in his monumental History of Interest Rates, 2000 B.C. to the present,

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that quote, during the last two decades of the 19th century, 1880 to 1900,

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long-term bond yields in the United States declined almost steadily.

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The nation entered its first period of low long-term interest rates, end quote,

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To gauge long-term rates of the day, it is best not to use the long-term government bonds

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we would use today as a measure.

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The National Banking Acts of 1863 to 1864 stipulated that these bonds had to be used

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to secure banknotes.

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This created such a demand for them that, as Homer says,

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quote,

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By the mid-1870s, it put government bond prices up to levels where their yields were far below

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acceptable rates of long-term interest.

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End quote.

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But the Commerce Department tracks the unadjusted index of yields of American railroad bonds.

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For 1878, the year before gold, the yield was 6.45 percent.

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For 1879, 5.98% and 1889, 4.43%.

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We stress that with consumer prices about 7% lower in 1889 than they had been the decade

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before, the real rate of return by decades end was well into double-digit range, a bonanza

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for savers and lenders.

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Short-term rates during the last century were considerably more skittish than long-term

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rates.

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Even here, the decennial averages of annual averages of both 3- to 6-month commercial

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paper rates and overnight call money during the 1880s declined from what it had been the

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previous decades.

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Average commercial paper rates fell from 6.46% for the decade of 1870-1879 to 5.14% for the

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decade of 1880-1889.

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These call money rates fell from 5.73% for the decade of 1870 to 1879 to 3.98% for the decade of 1880 to 1889.