자료: http://www.investopedia.com/terms/e/earnings-power.asp
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자료: http://www.investopedia.com/terms/e/earnings-power.asp
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자료: http://www.financiacapital.com/pdfs/Case_for_Deflation_6-2007.pdf
자료: http://randolfe.typepad.com/randolfe/2008/10/worried-about-i.html
For at least 3-4 years now there has been a lot of fretting and hand wringing over the fears of inflation and its uglier siblings. Certainly, consumer inflation has been growing fairly steadily since the late 1980s. But with this Great Deleveraging that's now occurring globally, are we really right to worry about inflation, stagflation or hyperinflation?
First, some defintions:
Inflation: The percentage change in the price level, usually referring to increasing prices. "Price level" itself can be applied to various measures, most commonly to a basket or bundle of goods and services.
Inflation is generally spoken about as part of the Quantity Theory of Money. It is through this theory's equations that people usually tie monetary policy to inflation.
Deflation, Disinflation: The opposite of inflation. The Great Depression was a deflationary cycle. Recessions are also deflationary.
Stagflation: A situation in which economic stagnation or even contraction occur simultaneously with inflation. Stagflation is particularly interesting because it is theoretically impossible under classical, Keynesian economics. But, of course, it happened twice in the US, leading to new theories and significant advancement of macroeconomic thought. Stagflationary cycles have been broken by the central bank intentionally causing a recession, and thus deflation. This was the famous action of former Federal Reserve Chairman Paul Volker.
Hyperinflation: An inflationary cycle which compounds out of control until currency is effectively debased to zero value. Most definitions of hyperinflation describe it as an order of magnitude increase in inflation per year, or 1% per day. Hyperinflations are relatively rare, and happen primarily as a function of a country's central bank printing money in order to service foreign debts. Hyperinflation has not occurred (for more than a brief moment as it began) within a country in the modern era so long as that country maintained a credible military force or was credibly protected by a country with such a military force. These countries choose to default instead of willingly destroying their own population and inciting an internal revolution. Famous hyperinflations, such as within pre-war Germany, were broken when the Germans militarized and broke war reparation agreements requiring them to repay crushing foreign debts. More modern hyperinflations have been broken by IMF action (ie, foreign intervention), or by various forms of practical default.
The Case for Inflation
Plenty of internet resources exist describing inflation. Suffices to say that we have been in a long-run period of general price inflation. However, it is important to note that perceptions of inflation by average people are often overstated. They usually do not recognize product-cycle-deflation. Items such as consumer electronics, computers, and automobiles are exceptionally deflationary, though most people perceive them as steady-state or inflationary. However, the value of those items rises as a function of technological innovation while the costs to produce them falls as a function of improved production techniques, all while prices tend to remain constant, fall, or rise more slowly than general price inflation.
Inflation is synonymous with a high-return global economy. It has become more pronounced and recognized as rolling asset bubbles have plagued the global economy.
The Case for Stagflation
Stagflation occurs as some prices, usually prices of inelastic goods such as food and energy, rise rapidly during a period of economic slowing. Other prices may continue to fall, however, increasingly disposable income falls as people shift spending to essential items for which the price is rising. Stagflations occur due to some economic shock, such as a war or supply disruption. Many have made the case that describes our current global situation, particularly in the US. This case has merit, and I see as the second most likely outcome of the current situation. It may also be that stagflation occurs as a transition into a more deflationary environment.
The Case for Hyperinflation
Hyperinflation is the least likely conclusion for the US, and for most western economies, in my opinion. Even were a hyperinflation to ignite within the US, it is more likely we would either intentionally or naturally quickly break into a Great Depression-style deflation, probably as a result of either overt or effective default on our foreign debts. Most who are calling for a hyperinflation in the US point solely to the "printing of money" as causing inevitable currency debasement. That is flawed reasoning of linear extrapolation. As Japan noted during their deflationary cycle, even cutting the interest rate to zero, and making the real rate negative (meaning one pays to store their cash in the bank instead of earning interest on it) did not result in a hyperinflationary debasement of their currency. Instead they became trapped in a liquidity-trap, as situation in which the central bank lost its ability to affect aggregate demand. I believe, for reasons outlined later, that this is (somewhat surprisingly, perhaps) where the US is headed.
The Case for Deflation
Financia Capital produced a reasonable analysis and essay making a case for deflation in their document MarketWatch Postscript: A Case for Deflation (PDF), June 2007. Other notable works can easily be found by way of a Google search on the subject.
I'll leave their analysis to carry the weight of the deflation scenario argument and just bring out some basics here:
자료: http://thepoliticsofdebt.com/?p=224
By Franklin in Economics, Finance, Thoughts on December 2nd, 2007
If you have read my previous articles on gold, you already know my opinion (it is just another commodity with an interesting history). The myth of gold as an inflation hedge comes from a rather primitive observation, when the value of money decreases, the value of gold rises. The myth goes like this: if you bought 100 ounces of gold at the yearly average for 1969, you spent $4109, if you sold it today, you would have $79,400. That’s a gain of 1832%, or 48%, a year.
On the other hand, if you spent the same amount on the Dow Jones you had bought 4.7 shares of the Dow at the yearly average for 1969. Those 4.7 share would now be worth $73.825 (reinvesting dividends). A gain of just 1700%, or 45% , a year.
Gold sounds like a an excellent investment, right?
Wrong. And here is why.
First, the $79,400 you have now, are enough to buy… 100 ounces of gold. Basically you sold dollars to buy some gold and then sold the gold to buy some dollars. There is no loss, but neither any gain. The problem however, is that to make any money you would need to trade the gold. Holding anything without the intention to sell is not a strategy of any sorts. At some point you will need to somehow realize your investment. Otherwise is just a paper gain and just illusory.
And here comes the problem, because if you had sold your gold in 2005, you would have made $44,474, while you would have made $49,486.9 on your Dow Jones investment, without reinvesting dividends.
This chart shows, as positive values, when the Dow Jones was a better investment than gold, and, as negative values, the opposite.
As you can see, in some circumstances, the Dow proved to be a better investment than gold, and, at some other times, the opposite was true. The bottom line is, gold is not a particularly better hedge than other forms of investment if you don’t consider the timing of the transactions.
Do I think gold is a bad investment in general? No! I think it is a great instrument for speculation, but, when you compare its yield year by year, you will notice that you can make or lose money, it is not a safe bet by any account. As you can see in the following chart, gold would have made you money only if you bought in 1971 and sold in 1974, or bought in 1976 and sold in 1980, etc. But the longest run you may have had would have been of 4 years, and that’s if you timed the market perfectly.
Now that we have proven that gold is not a superior investment if we don’t time the market, let’s see how it fares against inflation. To do this I will invite you to a thought experiment. Let’s imagine a type of good that in 1969 had the cost of 100 ounces of gold. Our good has some other characteristics as well, its price does not change based on supply and demand. This commodity is the most boring commodity on earth to trade, and consequently its name is Borodium. Borodium only changes in price based on inflation data and is the ultimate hedge against inflation. Borodium places an interesting problem though, how do we measure inflation? You see, if you calculate inflation with the Consumer Price Index, you will have different numbers than if you use 10 year notes, or 1 year notes. But that’s another story. No matter how you measure inflation, gold proves not to be a hedge against inflation.
The Borodium adjusted with the Consumer Price Index will be called Official Borodium, and this is its chart.
Now you can see why they call it Borodium, its price rises permanently and only adjusts for inflation. The value of 100 ounces of Borodium in 1969, as we said, was $4,109 or 100 ounces of gold.
For gold to be a hedge against inflation, the chart should be an ever rising slope, like Borodium’s. And yet, it is not, as you can see in the following charts.
The claim of gold as a hedge against inflation is based on the fact that the value of 100 ounces of Borodium today is $23,461.49, and with our gold investment at $68,755.00, we made a nice profit, and we now have 250 ounces of gold.
However, if we had bought our gold in 1974, at any time between 1979 and 1984, or at any time between 1986 and 1989, our gold investment would have lost money against inflation, the opposite of a hedge against inflation.
Again, how much of a hedge against inflation, and and how valuable as investment it is depends on timing the markets. For instance, had you bought gold in the peak of 1980 at 7 Borodium, you would have lost 80% of your money from High to Bottom, and as of today you would have lost 58% of your money.
That should be enough to dispel once and for all the myth of gold as a hedge against inflation. But I will keep on going because I am on a roll.
Now, we will see other ways in which Borodium is priced in the market. For instance, Borodium adjusts its price based on another inflation indicator by proxy, like the US Treasuries. We will use the 1 year and 10 year treasuries data because it is readily available.
As you can see, gold, when compared to the yield of 1 year Treasury notes (risk 0), is not a consistent investment and behaves as many other speculative instruments.
Compared to 10-year treasury notes, it is even a worse investment.
How bad? Let’s say that for gold to act as a hedge you would have had to buy in 1960 to see a return of 16% after 38 years, or at the bottom of 2001 to see a return of 110% today. Which is about the same you would have made buying the low of the Dow Jones in 2001 and selling the top this year.
자료: http://thepoliticsofdebt.com/?p=142
By Franklin in Economics on November 18th, 2007
※ Some bullets, bold letters and linings are added by this reader for study. To read the original article please refer to the source link above. Many thanks for the author for his insightful viewpoints.
I just uttered two of the worst things any economist would ever want to see. And they are together, for good measure. “This time is different” is the first answer you hear when an economist with conservative economic views warns the public about something out of whack in the economy. It happened in 1929 and it happened again in 2000. When the voices of reason warned that the bubbles may burst, those who “got it”, who understood the new economy, answered like a Greek chorus: “This time it is different“. I still remember conversations with friends during the summer of 2005 when I started to get worried about the housing bubble in South Florida, all of them disregarded my worries with unruffled arguments that sustained the dreaded conclusion. So it is not lightly that I dare utter these words.
For those who do not know what stagflation is or why you should care, there is only a simple explanation: imagine that you are out of work and the prices of goods keep rising. That’s the immediate effect of stagflation for you (the last period of stagflation in the United States was during the Carter administration). Without going into too much detail about what produces stagflation (there are a number of theories and you can read a succinct description of them in the above Wikipedia article), let’s just say that when the prices of goods rise beyond the ability of the producers to purchase and transfer the costs to the consumers, they are forced to reduce production and sell to only those consumers who can still buy the stuff. During the 70s, the United States was an industrial economy, and the effects of the rising price of commodities, particularly oil, put a strain in that industrial economy.
Economists who look at the past and the present are right in concluding that a period of stagflation may have a high chance of occurring again in the American Economy. However, this is the part that leads me to think that this time it is different.
In our current economy if you need an extra $10,000 and you have access to a personal credit line you are better off taking in a loan than working for your money. How come? Easy. We are living in a period of easy money financed by the Chinese economy. They loan us money to buy their goods so they can create and industrial base and an internal market to sustain an economy that is currently absolutely dependent on foreign buyers to subsist.
I do not think this will last forever, and the inflationary spiral may be already out of control. When gold reaches $1,400 an ounce it will be very difficult to produce any goods at a price that the impoverished and indebted American public is able to buy. But we are not there yet so let’s go back to no working.
As I was saying. Any middle class family who wants to be as lavish with their presents in this season as they were last year, have two options: work for the extra money or take a credit card loan at, say, 14% APR.
Anyway, I guess that’s why they call the present economy a “service” economy, because most of it runs on servicing debt instead of creating wealth.
The simple reason that it is more reasonable to take on further debt than working (at least in the short run) should be enough to dispel any fears of stagflation. However, this economic model is running into big problems. Some things are not different this time, and those are the limitations imposed by the universe we live in. For instance, China can not keep growing at this pace for long without needing to expand its territory and creating a new geopolitical mess. The United States could replace China’s slave labor with that of some other countries, but this will imply pulling the plug from China and creating some sort of monetary crisis that would allow the United States companies to pull out from China without paying the price of it. That would send China into an internal crisis that should not affect the American economy. Either way, the United States needs to secure first access to oil reserves, which still has not been done, or find a real substitute technology that would replace the current dependence on hydrocarbons.
So, next Friday, when you start your Christmas shopping paying with your credit card, feel good about it. Not only will your nephew receive that iPhone, you will be also contributing to the next 20 years of history.
British pound sterling bonds (gilts), issued by the Bank of England, and known as gilts in the market, as these securities have little risk of default. It also refers to AAA-rated U.S. Corporate bonds.
자료: http://www.answers.com/topic/hyperinflation
The hyperinflation episode in the Weimar Republic in the 1920s was not the first hyperinflation, nor was it the only one in early 1920s Europe. However, as the most prominent case following the emergence of economics as a science, it drew interest in a way that previous instances had not. Many of the surreal economic behaviors now associated with hyperinflation were first documented systematically in Germany: order-of-magnitude increases in prices and interest rates, redenomination of the currency, consumer flight from cash to hard assets, and the rapid expansion of industries that produced those assets.
It is sometimes argued that Germany had to inflate its currency to pay the war reparations required under the
Hyperinflation did not directly bring about the Nazitakeover of Germany; the inflation ended with the introduction of the Rentenmark and the Weimar Republic continued for a decade afterward. The inflation did, however, raise doubts about the competence of liberal institutions, especially amongst a middle class who had held cash savings and bonds. It also produced resentment of Germany's bankers and speculators, many of themJewish, whom the government and press blamed for the inflation.
Since hyperinflation is visible as a monetary effect, models of hyperinflation center on the demand for money. Economists see both a rapid increase in the money supply and an increase in the velocity of money. Either one or both of these encourage inflation and hyperinflation. A dramatic increase in the velocity of money as the cause of hyperinflation is central to the "crisis of confidence" model of hyperinflation, where the risk premium that sellers demand for the paper currency over the nominal value grows rapidly. The second theory is that there is first a radical increase in the amount of circulating medium, which can be called the "monetary model" of hyperinflation. In either model, the second effect then follows from the first — either too little confidence forcing an increase in the money supply, or too much money destroying confidence.
In the confidence model, some event, or series of events, such as defeats in battle, or a run on stocks of the specie which back a currency, removes the belief that the authority issuing the money will remain solvent — whether a bank or a government. Because people do not want to hold notes which may become valueless, they want to spend them in preference to holding notes which will lose value. Sellers, realizing that there is a higher risk for the currency, demand a greater and greater premium over the original value. Under this model, the method of ending hyperinflation is to change the backing of the currency — often by issuing a completely new one. War is one commonly cited cause of crisis of confidence, particularly losing in a war, as occurred during Napoleonic Vienna, and capital flight, sometimes because of "contagion" is another. In this view, the increase in the circulating medium is the result of the government attempting to buy time without coming to terms with the root cause of the lack of confidence itself.
In the monetary model, hyperinflation is a positive feedback cycle of rapid monetary expansion. It has the same cause as all other inflation: money-issuing bodies, central or otherwise, produce currency to pay spiralling costs, often from lax fiscal policy, or the mounting costs of warfare. When businesspeople perceive that the issuer is committed to a policy of rapid currency expansion, they mark up prices to cover the expected decay in the currency's value. The issuer must then accelerate its expansion to cover these prices, which pushes the currency value down even faster than before. According to this model the issuer cannot "win" and the only solution is to abruptly stop expanding the currency. Unfortunately, the end of expansion can cause a severe financial shock to those using the currency as expectations are suddenly adjusted. This policy, combined with reductions of pensions, wages, and government outlays, formed part of the Washington consensus of the 1990s.
Whatever the cause, hyperinflation involves both the supply and velocity of money. Which comes first is a matter of debate, and there may be no universal story that applies to all cases. But once the hyperinflation is established, the pattern of increasing the money stock, by which ever agencies are allowed to do so, is universal. Because this practice increases the supply of currency without any matching increase in demand for it, the price of the currency, that is the exchange rate, naturally falls relative to other currencies. Inflation becomes hyperinflation when the increase in money supply turns specific areas of pricing power into a general frenzy of spending quickly before money becomes worthless. The purchasing power of the currency drops so rapidly that holding cash for even a day is an unacceptable loss of purchasing power. As a result, no one holds currency, which increases the velocity of money, and worsens the crisis.
That is, rapidly rising prices undermine money's role as a store of value, so that people try to spend it on real goods or services as quickly as possible. Thus, the monetary model predicts that the velocity of money will riseendogenously as a result of the excessive increase in the money supply. At the point where ordinary purchases are affected by inflation pressures, hyperinflation is out of control, in the sense that ordinary policy mechanisms, such as increasing reserve requirements, raising interest rates or cutting government spending will all be responded to by shifting away from the rapidly dwindling currency and towards other means of exchange.
During a period of hyperinflation, bank runs, loans for 24 hour periods, switching to alternate currencies, the return to use of gold or silver or even
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