What a difference two months makes.
In early April there wasn't an interest rate in the United States that wasn't at its historic, or legal, peak.
The bank prime rate was 20 percent. The U.S. Treasury, the world's best risk, was paying 15 percent to borrow money for 26 weeks and 12 percent on its long-term bonds.
Corporate borrowers were doing their best to avoid long-term financing, but when they had to sell bonds they were paying 15 percent or more. Mortgage money -- what little was available -- cost homeowners as much as 17 percent.
But as the economy has tumbled headlong into a severe recession, interest rates have nosedived, too.
Monday, Treasury bill rates slipped below 7 percent for the first time in more than two years. Treasury bonds are yielding 9.6 percent. The bank prime rate is 13 percent at most financial institutions, and a few smaller banks have knocked it down to 12 percent.
Bond prices have risen sharply -- they move up when interest rates go down -- and corporations are falling over one another to float bond issues at 10 percent and use the proceeds to pay off their high-priced bank loans.
"There's nothing Machiavellian about it (the sharp plunge in rates). The demand for money and credit simply has evaporated since early April," said Patrick Savin, an economist at Drexel Burnham Lambert Inc.
As demand for many declines, so does its price; the rate of interest.
Henry Kaufman,chief economist at the investment banking firm Salomon Brothers, pointed out that loans at the nation's biggest banks grew by $2 billion during the first three months of the year and fell by $9 billion during April and May.
The Federal Reserve Board, which in earlier years played a major role in the rise and fall of interest rates, this year appears to have had little to do with the sharp decline.
The central bank has been focusing on the supply of money in the economy since last October, leaving interest rates to fund for themselves.
Not everyone believes the Fed has assumed a posture of benign neglect in the recent crash in rates. Bond prices fell sharply late today when the Fed didn't take steps to push down rates further.
But most analysis insist the Fed has done little, if anything, to reduce interest rates, although with a recession looming, it has taken no steps to combat the rate decline.
"There is no evidence the Fed is massaging rates," said Lawrence Kudlow, chief economist for the brokerage frim of Bear Stearns Inc. "The private economy is collapsing."
"It may be too simple for people to accept, but the decline in interest rates is caused by the real economy, not the Fed," Savin said.
The decline in rates has been helped not only by the steep economic slide -- which may be a blessing to bond traders but is a terrific burden to hundreds of thousands of newly unemployed workers -- but also by an easing in inflation expectations.
Wholesale prices had been climbing at a 20 percent annual rate early in the year, but the increases have slowed sharply.The government said last week that wholesale prices rose only 0.3 percent in May, their best record in nearly three years.
Although no one believes consumer prices will slow that much -- or, for that matter, that wholesale prices will continue to perform that well -- there does appear to be hope that the inflation rate will come down below 10 percent this year.
Although the decline in interest rates has been a boon to home buyers and corporations, it has its darker side as well.
The U.S. dollar has been strong through the first three and one-half months of 1980 mainly because of the high interest rates in the United States. Foreign investors hankered after the dollar in order to make investments in high-yielding U.S. securities. The steep decline in rates has made the dollar a less attractive haven for foreigners. As a result, the dollar has weakened substantially against most major world currencies.