8. Theory of Debt, Its Proper Role, Leverage Cycles

Financial Markets (2011) (ECON 252)
Professor Shiller devotes the beginning of the lecture to exploring the theoretical determinants of the level of interest rates. Eugen von Boehm-Bawerk names technical progress, roundaboutness, and time preference as the crucial factors. Professor Shiller complements von Boehm-Bawerk's analysis with two of Irving Fisher's modeling approaches, the view of the interest rate as the equilibrium variable in the savings market and the perspective of simple Robinson Crusoe economies on the determination of interest rates. Subsequently, Professor Shiller focuses his attention on present discounted values and derives the price for discount bonds, consols, annuities, as well as corporate bonds. His treatment of the term structure of interest rates leads him to forward rates and the expectations theory of the term structure of interest rates. At the end of the lecture, he offers insights on usurious loan practices, from ancient times until today, and describes the improvements in consumer financial protection that have been made after the financial crisis of the 2000s.
00:00 - Chapter 1. Introduction
01:24 - Chapter 2. Theories for the Determinants of Interest Rates
28:11 - Chapter 3. Present Discounted Values, Compounding, and Pricing Bond Contracts
47:50 - Chapter 4. Forward Rates and the Term Structure of Interest Rates
01:03:29 - Chapter 5. The Ancient History of Interest Rates and Usurious Loans
01:11:08 - Chapter 6. Elizabeth Warren and the Consumer Financial Protection Bureau
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.