Comments on: Real Rates of Return http://civfi.com/2009/06/26/real-rates-of-return/ Sustainable Financing for Civilization Sun, 13 May 2012 14:48:04 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Leslie Halls http://civfi.com/2009/06/26/real-rates-of-return/#comment-20 Leslie Halls Tue, 30 Jun 2009 21:08:07 +0000 http://edwardring.com/?p=199#comment-20 This is a brilliant article. Unfortunately what has been lost in the environmental debate is the benefits of infrastructure to the population. The debate is always framed by putting environmental concerns above human concerns. They are not mutually exclusive. For instance, roads are one of the most basic and freeing infrastructure investments a Third World country can make, opening new markets, allowing people to travel more conveniently, creating new markets along the way and uniting a country. Why do you suppose there were no cross-country roads in colonial Africa, only roads into the interior to export resources? Conversely, can you imagine India without its railroads? This was a great article and I just wish, just as we have a worldwide emphasis on all things "green," we had a worldwide emphasis on better living through infrastructure. This is a brilliant article. Unfortunately what has been lost in the environmental debate is the benefits of infrastructure to the population. The debate is always framed by putting environmental concerns above human concerns. They are not mutually exclusive. For instance, roads are one of the most basic and freeing infrastructure investments a Third World country can make, opening new markets, allowing people to travel more conveniently, creating new markets along the way and uniting a country. Why do you suppose there were no cross-country roads in colonial Africa, only roads into the interior to export resources? Conversely, can you imagine India without its railroads? This was a great article and I just wish, just as we have a worldwide emphasis on all things “green,” we had a worldwide emphasis on better living through infrastructure.

]]> By: boprn http://civfi.com/2009/06/26/real-rates-of-return/#comment-17 boprn Mon, 29 Jun 2009 16:14:08 +0000 http://edwardring.com/?p=199#comment-17 I will be the first to 'bite'/post on this article. It is a pretty good article, however (isn't there always a however) real rates of return are difficult to calculate. You have included inflation in your ROR analysis - something a lot of people 'forget' to do. Inflation has been manipulated by the fed to hide accurate indexing. Hedonic inflation adjustment was adopted by the fed during the Bush administration to give the impression that inflation was under control. In addition, only certain staple items could be compared (most recently food/energy were left out), to prior years. The manipulation of the inflation index was further increased by the ability to pick years to compare staple sectors to. As an example, instead of comparing electric rates to the prior year, we may compare them to 5 years prior, or 20 years - giving a 'smoothing' rate to that sector. Perhaps inflation in that sector has been 10%/year for the last 5 years, but if we compare it to the last 20 years, it may come out to 4%. Why do I bring this up? Next paragraph.... So, figuring real returns can be difficult. The return rates table you have here is great, but there has been a mass of unreported inflation building up that is not calculated in. The unreported infation, combined with the real global devaluation of the dollar (has fallen 40% against major/stable currencies over the last 8 years), as well new as restrictions on business are all setting the stage for hyper inflation (at the consumer level) and high interest rates. The potential effect on the stock markets is huge. While in real terms, companies (as well as individuals) will be losing ground to inflation, hard assets owned by business will balloon, but lose value relative to real worth when compared to staple commodities. Companies will be paying higher dividends, with per share stock valuations heading north pension obligations will be within easy reach. Of course the real value of those obligations will have decreased. Which brings us to who will suffer - the retiree. The retiree, with a (somewhat) fixed pension, will see the buying power of that pension erode faster than ever. In the end analysis, someone has to suffer the decisions of the fed reserve, manipulated inflation numbers, and that person is the retiree. I will be the first to ‘bite’/post on this article. It is a pretty good article, however (isn’t there always a however) real rates of return are difficult to calculate. You have included inflation in your ROR analysis – something a lot of people ‘forget’ to do. Inflation has been manipulated by the fed to hide accurate indexing. Hedonic inflation adjustment was adopted by the fed during the Bush administration to give the impression that inflation was under control. In addition, only certain staple items could be compared (most recently food/energy were left out), to prior years. The manipulation of the inflation index was further increased by the ability to pick years to compare staple sectors to. As an example, instead of comparing electric rates to the prior year, we may compare them to 5 years prior, or 20 years – giving a ‘smoothing’ rate to that sector. Perhaps inflation in that sector has been 10%/year for the last 5 years, but if we compare it to the last 20 years, it may come out to 4%. Why do I bring this up? Next paragraph….

So, figuring real returns can be difficult. The return rates table you have here is great, but there has been a mass of unreported inflation building up that is not calculated in. The unreported infation, combined with the real global devaluation of the dollar (has fallen 40% against major/stable currencies over the last 8 years), as well new as restrictions on business are all setting the stage for hyper inflation (at the consumer level) and high interest rates. The potential effect on the stock markets is huge. While in real terms, companies (as well as individuals) will be losing ground to inflation, hard assets owned by business will balloon, but lose value relative to real worth when compared to staple commodities. Companies will be paying higher dividends, with per share stock valuations heading north pension obligations will be within easy reach. Of course the real value of those obligations will have decreased. Which brings us to who will suffer – the retiree. The retiree, with a (somewhat) fixed pension, will see the buying power of that pension erode faster than ever. In the end analysis, someone has to suffer the decisions of the fed reserve, manipulated inflation numbers, and that person is the retiree.

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