Total US debt has now exceeded $20 trillion for the first time ever. Meanwhile, interest rates (i.e. the cost of debt) in the US and around the globe reached the lowest levels in recorded history. 

Financial Sense recently spoke with Richard Sylla, professor emeritus of economics at New York University and the co-author of A History of Interest Rates, about the unique times we are living in and why, historically speaking, we may be looking at a momentous turning point in human civilization.

History of Interest Rates

“As long as you have some commerce…people are going to demand credit,” Sylla said.

Silver and gold have always been prized, but coin-based currency didn’t come in until the fifth or sixth century. This ushered in a new era, Sylla noted.

This was one of the most impactful economic innovations in history, basically beginning in Asia Minor or what is today Turkey.

This state of affairs changed over the years, but we basically had a monetary system based on precious metals until the classical gold standard in the late 19th and early 20th centuries, Sylla noted.

Then, in the 1930s, due to the effects of the Great Depression, President Franklin Roosevelt took the US off the gold standard and we’ve been on a unbacked fiat system ever since.

“We are living in an age of fiat money now,” he said. “The governments don’t have to exchange the paper money they produce for gold or silver anymore. I think that led to high inflation in the US from the late 1960s until that high-interest rate period of 1980 to 1981. Since that time, the central banks have been a little more responsible, not inflating the US currency supply so much.”

Credit Patterns and Peak Civilizations

In A History of Interest Rates, Sylla identified an interesting pattern corresponding to the rise and fall of major empires.

When we look at interest rate trends, “it seems like there is a U-shaped cycle for each civilization,” he told listeners.