5 ms·
The real value is the nominal value adjusted for the rate of inflation (using an agreed definition of inflation and against some agreed monetary base - see M0,
by lurcio 9y ago
The real value is the nominal value adjusted for the rate of inflation (using an agreed definition of inflation and against some agreed monetary base - see M0, M1... and other types of monies)
Inflation means the purchasing power of the unit of currency is reduced. iirc it was Keynes who noted that government financing can utilise the margin between real and nominal values, with the benefit of also maintaining animal spirits (bullishness/confidence) as the public sees only price.
For economist perspectives: Paul Krugman's blog elaborates on this in a readable way. Mises.org provides one critique. David Harvey another.
Dan Amerman provides an CFA/investor perspective (http://danielamerman.com/va/Dow36.html http://danielamerman.com/va/Dow36.html)
The graph linked to above could be viewed as a decline in real value of equities - or the value preserving market response to inflationary pressures (with some degree of non-market support)
The combination of inflation and tax rates is important to understanding the interplay between government, markets and the wider economy. Which is the dog and which the tail is a moot point. Not endorsing, and not by any means the last word, but David Graeber provides an alternative starting point before exploring further: https://www.theguardian.com/commentisfree/video/2015/oct/28/david-graeber-what-government-doesnt-want-you-to-know-about-debt-video https://www.theguardian.com/commentisfree/video/2015/oct/28/...
- danmaz74 9y agoVery interesting. I watched the video; the flaw there is that, to simplify things, it doesn't consider international trade and capital movements, which make the "simple matter of mathematics" not such a simple matter at all...
- danmaz74 9y agoI also read the Amerman article now. His analysis completely forgets one very important thing: stock dividends, which are also higher during periods of high inflation, and compound if you reinvest them. I didn't run the math, but that would for sure change the results a lot. http://www.multpl.com/s-p-500-dividend-yield/table http://www.multpl.com/s-p-500-dividend-yield/table
- lurcio 9y agoAgree on the oversight. From his CFA perspective (which I'm not in any way), divs are somewhat diminished in the new normal (as your link shows), and minority of companies account for the majority of divs. Of course, fiscal policy also impacts div gains. Double whammy. Creates a great climate for the development of productive assets, rather than resting on protective assets.
- danmaz74 9y agoBut the "new normal" includes very low price inflation, while his analysis is based on a period of high inflation and high dividends. With that overlook, his predictions look very shaky to me.