In the 1800’s when the US was on the classic gold standard and the economy saw falling prices (deflation) rather than rising prices (inflation), real interest rates were somewhere in the region of 5-10%. The US had a strong currency (gold) and because no central bank existed back then (there were two attempts but both went bankrupt and the Fed as it stands today was created in 1913), the US had positive real interest rates.

It is this high real interest rate environment that brought about the industrial revolution and a rate of savings, capital accumulation and economic progress unmatched in history.

Because the South African Reserve Bank is keeping real interest rates too low (causing rand weakness in turn), it is hampering any chance the manufacturing sector has of growing. Instead, because of low real interest rates and a weak rand, the sector is in terminal decline.

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