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I'm starting off this conversation with a reference to the rate the latest invest the latest memo that he wrote when you talked about the sea change and how uh declining interest rates for nearly four decades being the second sea change and the latest one being the complete reversal of the conditions from 2009 to 2021.
how do you think this impacts uh 2023 uh and the years ahead both for the Western World and subsequently the Emerging Market world thank you um well first of all a sea change for those who don't know is an idiom used to describe a a major transformation a total change and I think I think you know not a not a an occasional cyclical fluctuation a major change and I think we may be going through one of those as you mentioned uh the first one that I lived through occurred uh in the Years between 1980 and uh 2020 in 1980 for those who don't remember uh the interest rates in the states reached over 20 percent uh Paul volcker became chairman of the FED he had to raise rates in order to uh snuff out inflation and inflationary thinking uh uh inflation is is a real Menace uh and it has to be brought under control and you you do that by really by slowing the economy um and uh so uh volcker did that um as I say I had a loan outstanding from a bank at the time the the rate on the loan hit 22 and a quarter in 1980.
40 years later I was able to borrow at two and a quarter so in other words interest rates came down by 20 percent or what we call 2000 basis points and uh this has been a very strong uh Tailwind supporting uh asset ownership uh subsidizing uh borrowers uh enriching owners of assets penalizing Savers and lenders and uh this was this prevailed for a very long time and uh you know so long in fact that there are very few people around who's who saw the world before it began uh you know you had to be in the 70s which meant in in our world you had to be working in the 60s you couldn't get a job in the 70s so I got mine in the 60s and there aren't many of us around um so this was a tremendous Tailwind uh that benefited certain strategies and penalized others uh and it had other effects of course it it um it produces risk taking because uh very safe instruments uh like treasuries and cash yield close to zero nobody wants zero so they have to go out the risk curve in order to get the kinds of returns they do want and they have to take risk to get that so that's that's one uh form uh there were many many ramifications it was very people were eager to to uh to uh to do lending to risky companies uh which meant it made it very easy for risky companies to grow uh that's that's another effect so uh I think that uh I'm not calling for a return to 20 interest rates I I you know right now the FED funds rate in the states is about four and a quarter and I think it'll stay in this vicinity it may it'll go a little higher next year they've indicated that there will be some more rate Rises uh but nothing major my main point is that it's not going back to what it used to be you know uh to fight the Global Financial uh crisis the FED dropped the FED funds rate to zero uh at the end of 08 uh and kept it there for seven years so people start to think oh I guess zero is the normal interest rate well the point is it's not and uh when you have a very strong economy abetted by low interest rates then you don't have the faults in bankruptcies that's not normal uh it's not normally so easy to raise money if you're a low quality company that's not normal so my point is that I'm we're going back in my opinion to a normal times in in which is not so great for borrowers and asset owners and it's not so bad for Savers and lenders
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