Striking Empirical Relationship between Interest Rates and Spending: You can't un-see what your about to see

It is natural for us to believe that lower interest rates will entice people to spend more; at least that is what we have been told by the men standing in their ivory towers. It is probably the biggest false truth we have been told to believe in modern history; well, atleast from 2001.

It is clear from the chart above the change in human behavior over the last 40 years. The relationship between spending and interest rates no longer resembles anything we had between 1980-2000. As interest rates decreased, saving increased. Perhaps under 4% interest rates the perception of risk for risky assets changes. Maybe lower interest rates doesn't mean cheap money, but bad economy and lower growth in the foreseeable future and therefore will hold my money until things look prettier mentality. Regardless, this is definitely a negative feedback loop from growth perspective.

Inflation vs Interest rate relationship: totally broken.

Interest rate and saving rate relationship: totally broken.

Food for Thought: At the interest rates people are willing to save their money, it would be really great to utilize cheap financing for social-businesses and help build a better world.

More Knowledge, More Power.

-CS