2008년 10월 31일 금요일

Earnings Power

자료: http://www.investopedia.com/terms/e/earnings-power.asp

Earnings Power

What does it Mean?A business's ability to generate profit from conducting its operations. Earnings power is used to analyze stocks to assess whether the underlying company is worthy of investment. Possessing greater long-term earnings power is one indication that a stock may be a good investment.
Investopedia Says...Many metrics are used to solely determine a company's earnings power. For example, analyzing a company's return on assets (ROA) and return on equity (ROE) determines the company's ability to generate profit from its assets and shareholder's equity, respectively.

Individual sectors or industries may place greater importance on certain metrics for earnings power purposes compared to others. For example, the dividend yield may be more relevant for a long-lived blue chip company compared to a rapidly growing start-up, because the start-up will more likely be investing its money back into the firm to sustain its growth rather than dispensing dividends.

MarketWatch Postscript: A Case for Deflation

자료: http://www.financiacapital.com/pdfs/Case_for_Deflation_6-2007.pdf

June 2007

It happened in Japan at the end of the twentieth century and around the world at the start of the last century. Early in the current decade economists debated whether it might strike again. Butnow few seem worried about deflation—the economic condition where prices consistently fall for both goods and assets. In writing the MarketWatch column in Semiconductor Magazine from
2001 to 2006, I alluded to some concerns about future deflation, but it was never possible to
address such a complex matter in a one-page column. So I want to take the opportunity now to
discuss this weighty subject, in a MarketWatch “postscript” of sorts.

Today, few are worried about deflation. But I believe that we should be much more concerned
than we presently are over the possibility of this past danger returning. Although I also think that this current economic expansion still has some ways to run. Nevertheless in this essay, I will
argue that policy makers are underestimating the consumer disinflationary forces in the world
today, a mistake that has led to the creation of dangerous asset bubbles. And once popped,
these bubbles seem likely to unleash global deflation.

There are three primary arguments in my deflation thesis:
  • First, there are powerful disinflationary forces in the world today, which are causing the prices of goods and services to rise more slowly than in the past and are largely responsible for the low levels of consumer inflation we have enjoyed in recent years; 
  • Second, reassured by a benign inflation environment, global central bankers have permitted excess liquidity to accumulate, which in turn has led to the creation of dangerous asset bubbles; 
  • Finally, the inevitable collapse of these bubbles will eventually likely lead to a liquidity trap, the return of deflation and a negative global economic environment.

Worried about Inflation, Stagflation or Hyperinflation? You shouldn't be.

자료: http://randolfe.typepad.com/randolfe/2008/10/worried-about-i.html

Monday, October 06, 2008

Worried about Inflation, Stagflation or Hyperinflation? You shouldn't be.

Deflation_2For 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.Deflation

I'll leave their analysis to carry the weight of the deflation scenario argument and just bring out some basics here:

  • Many products are strongly deflationary, as mentioned earlier.  Computers are an easily describable example.
  • Stiff price increases in commodities is a function of global demand more than monetary policy.  During a period of slowing global economic growth, commodity prices subside.
  • Pursuit of high-returns coupled with easy-money monetary policy has resulted in rolling asset bubbles.
  • When the rolling bubble(s) encounter an end-game scenario, the popping of those bubbles is strictly deflationary.  I argue that real assets (as in real estate) represent the end-game scenario.  The amount of leverage generated and global capital deployed to inflate the global real estate bubble is so massive that no other asset class exists to adequately absorb the accrued inflation.  Therefore, as it pops, strict deflation must occur.
  • Attempting to "inflate our way out of" the current scenario will result in a liquidity trap, further complicating deflation.  The system of credit is delevering, which necessarily implies, deflating.  That is, less credit will be available after the correction than before because capital is being levered much less.
  • Less credit impacts the consumer sector of the US by decreasing aggregate demand, causing deflation.
  • Investors will no longer seek high-returns instead preferring optimal risk-adjusted returns.  This will cause investment, which fuels credit, to be attracted to less risky, lower growth endeavors.  Lower growth adds to deflation.

The Myth Of Gold as Inflation Hedge

자료: http://thepoliticsofdebt.com/?p=224

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. image

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.

Stagflation: This Time It Is Different

자료: http://thepoliticsofdebt.com/?p=142

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.

  • For one, the American Economy is not as heavily industrial as in the 70s, and thus the effect of rising commodity prices has lest of direct effect on the economy. 
  • Besides, during the 70s, consumer credit was not as widely used as today, and even if it was, with Federal Funds rates of 11 and 13% most consumers would not have been able to take loans to supplement their income.

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. 

  • If they go to work for their money, they need to invest the effort now, pay 25% of their money in taxes and get the money after they worked. 
  • With the loan, they will receive the whole amount immediately, they will not pay taxes on the extra money, and they will provide work after they enjoy the fruit of their efforts. 
Provided that this median income family that pays 25% in taxes, has access to a credit line of $10,000 at an APR of 14% pays the debt in less than 3 years, they would not lose money. The society as a whole may, if the taxes are being used responsibly, but they would have paid the same amount to the private lender than they would had the government. As you can imagine, this situation is not sustainable, and our cherished family needs a small bump on the road to dreamland to be in the road to the poorhouse. But that’s not our problem, is it?

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.

2008년 10월 30일 목요일

Inflation accounting and Nonfinancial Corporate Profits: Physical Assets

자료: http://faculty-gsb.stanford.edu/bulow/articles/Inflation%20accounting%20and%20nonfinancial%20corporate%20profits%20financial%20assets%20and%20liabilities.pdf

John B. Shoven, Jeremy I. Bulow

※ 메모: 

The Definition of Real Corporate Profits: 

It is widely recognized that inflation of the general price level and relative price adjustments distort and cloud themeaning ofcorporate accounts and, therefore, also corporate taxation and the portion of the national income accounts (NIA) that is based on corporate financial statistics. The distortion arises primarily because under current accounting practice firms carry many physical and financial assets and liabilities at original cost or book value, figures that are expressed in dissimilar units and that may deviate widely from current market value or replacement cost. Accounting practices also differ greatly across firms and between tax and book financial reports for the same company. These practices may create unnecessary inefficiencies
in taxation and investment, and increase difficulty in predicting or assessing the cyclical position of the economy. Indeed, there has been some speculation that the recognition ofthe 1974—75 recession was delayed by the distorting effects of inflation on reported business statistics. 1)

1) See, for example, James P. Gannon, “Analysts Now Agree Recession’s Key Cause Was Rampant Inflation,” Wall Street Journal, April 25, 1975.


The first issue to be addressed in such a study is the definition of corporate net income or profits. Corporate income figures are used for a wide variety ofpurposes. They serve as a base for corporate taxation, as a guide to investment allocation and management performance, as an ingredient in the construction of national income accounts, and as data for determining the functional and personal distribution of income. No single concept or measure of income will always be optimal for all of these uses. While we will focus on a definition that we find most appropriate for income or welfare comparisons, other constructions will be describedand the
available data necessary for their evaluation will be presented here and in the sequel.

In discussing income definitions, the initial question is whose income is being estimated. There are several classes of claimants on the assets and income flows of a firm, including bondholders, banks and other short-term lenders, and preferred and common stockholders. In our work, profits are taken to be a measure of the increase in real economic power of the equity holders due to their investments. This definition is consistent with current accounting practice and with the tax base of the present corporation income tax.

A fuhdamental choice faced in defining corporate profits is between using a realization or an accrual basis. An identical issue exists in assessing personal income. The fundamental question is whether assets and liabilities should be carried on balance sheets at historical cost or at current market value. When is economic power enhanced—at the time the market value of an asset increases (or a liability decreases), or when these changes in value are converted into cash? Present corporate accounting practices adopt a combination of the accrual and realization criteria. While accounts receivable and payable are accrued (that is, treated as equivalent to cash), other financial assets and liabilities of nonfinancial corporations are carried at their issue or purchase prices until redeemed or sold, a convention consistent with a realization principle. Land and other real capital assets that are deemed nondepreciable andnondepletable are also carried at purchase price. Real depreciable assets are written down from original cost according to a presumptive schedule of the effects of wear, tear, and obsolescence. The depreciation aspect of this policy can be interpreted as an attempt to approximate accrual accounting for these items, while the original-cost basis is more consistent with the realization principle. As will be described
below, current accounting practice with respect to inventoried assets in effect gives firms a once-and-for-all choice between accounting methods that approximate the accrual or realization definitions of income. The present accounting system rests on an intended logic with respect to the accrual-realization choice, although it has not been implemented as precisely as it might. One of the major tenets of financial accounting is the going-concern assumption, according to which the firm will continue in its particular productive activity indefinitely.4)  It is in the business of selling some things and using (not selling) others (like physical plant and equipment).
Since these latter items are not going to be sold, their current market value is not relevant for the firm. This classification of goods implies accrual accounting on items that the firm sells and a realization method on those that it does not. ...

Assessing financial system stability, efficiency and structure at the Bank of England

BIS Papers No 1 139. By Andrew G Haldane, Glenn Hoggarth and Victoria Saporta, 1)
Bank of England

1) Bank of England, Threadneedle Street, London, EC2R 8AH. We are grateful to Alastair Clark, Paul Tucker, Simon Buckle, Patricia Jackson and Ian Michael for comments. However, views expressed are not necessarily those of the Bank of England.
2) Other examples would include Eastern Europe in the 1920s and Israel in the 1980s.

자료: http://www.bis.org/publ/bppdf/bispap01e.pdf

1. Introduction
Financial stability is concerned with an economy’s saving-investment nexus. Deviations from the
optimal saving-investment plan generate a welfare cost. These deviations may arise from
inefficiencies in the functioning of the financial system or from instabilities in this system in the face of shocks. These welfare frictions are behaviourally distinct, though they are closely interlinked. There may also at times be a trade-off between the two. For example, an increase in competitiveness may accentuate the financial system’s vulnerability to shocks, while conversely guarantees to the safety of the system as a whole may reduce its efficiency. An extreme version of the latter was witnessed in the financial systems of eastern Europe and the former Soviet Union during the command economy period. Any potential trade-off between financial stability and efficiency may be reduced, however, by having in place an adequate financial infrastructure for intermediating flows of funds or settling payments, and for regulating the financial system.

These frictions in the financial system are a potential public policy concern. They may justify public policy oversight and/or intervention and have, as a result, long been reflected in the mandate of central banks. For example, the Federal Reserve System was set up in 1914 “to furnish an elastic currency” - act as lender of last resort - against a backdrop of 14 separate episodes of banking panic between 1793 and 1914. Through extended periods over the last two centuries, financial stability has clearly been the primary concern of central banks around the world. The Bank of England is no exception.

The welfare costs of financial instability are often closely associated with monetary instabilities.
Monetary instability may give rise to both inefficiencies and instabilities in the financial system. The Great Depression is a classic example of extreme financial instability that was, in part at least, induced by monetary instability. At the end of 1933, the number of banks in the United States was half the number that existed in 1929 (Bernanke (1983)), during which time money income had fallen by 53% and real income by 36% from their 1929 peak (Wood (1999)).

The link between monetary stability and financial inefficiencies is harder to pinpoint. But recent work by English (1999) offers some interesting insights. English’s analysis starts from the observation that financial sectors increase markedly in size in economies undergoing high inflation or hyperinflation. He quotes the example of Germany in the 1920s, where the number of bank employees doubled between 1920 and 1923, at the peak of the hyperinflation, before returning to their earlier levels in 1924 as inflation subsided.2 The reason for this is that agents switch out of (non-interest bearing) money balances to make greater use of banking services as inflation rises. But this is a socially wasteful switch, because financial services resources could otherwise be put to more productive uses. At high rates of inflation, the financial sector is above its socially efficient level. English estimates that a 10 percentage point rise in inflation has a welfare cost equal to around 1¼% of GDP working through this financial sector channel. This is a non-trivial cost. It is an example of monetary instabilities generating well-defined welfare inefficiencies from a financial system perspective.

There have been few (if any) studies evaluating precisely the direct welfare costs associated with
financial instability and financial inefficiency. There has been recent work, however, quantifying some of the costs of financial instability and inefficiency in terms of foregone output. One strand of the literature has quantified the costs of recent banking and currency crises. Crises are, almost by definition, episodic and extreme instances of financial instability. As evidence on the output costs of financial instability more broadly, they are therefore limited and partial. To draw an analogy with monetary stability, they are equivalent to quantifying the output costs of hyperinflation - extreme monetary events. Nonetheless, the studies are illuminating and there have been enough recent crisis episodes to reach some fairly robust conclusions. The World Bank (Caprio and Klingebiel (1996,1999)) for example, document 69 instances of “systemic” crises since the late 1970s.  

What broad conclusions can we draw from these studies? First, it is clear that banking crises are
associated with periods of low output relative to various measures of pre-crisis trend levels. Using various measures of output loss, Hoggarth, Reis and Saporta (2001) estimate average output losses of 15-20% of annual GDP for a sample of 43 banking crises. Second, banking crises are not confined to developing economies. Twelve out of the 54 global banking crises documented by the IMF in an interesting study (World Economic Outlook, 1998) occurred in industrial countries. Moreover, banking crises in high-income countries have tended to last longer and, on some estimates, have been associated with greater cumulative output losses than crises in middle and low-income countries.

According to the same IMF study, the average crisis length in the sample industrial countries is
4.1 years compared to 2.8 years in the sample emerging economies. Using a different sample of
crises, Hoggarth et al (2001) confirm the IMF finding and report cumulative output losses of 24% and 14% of annual GDP, on average, in high and medium/low income countries respectively. Third, “twin crisis” episodes (when banking instability and sharp pressures on a country’s exchange rate occur at the same time) are associated with considerably higher output losses than “single” banking crises -between three and five times as large according to Hoggarth et al’s (2001) estimates. Similarly, estimates of the fiscal costs of banking crisis resolution are much larger when there is a twin crisis (Aziz, Camarazza and Salgado (2000), Hoggarth et al (2001)), especially when the exchange rate was previously fixed. This is consistent with the notion that the macroeconomic consequences of banking sector fragility are amplified when banking sector problems are intertwined with or, as some of the recent literature on the causes of the Asian crisis suggests, cause exchange rate vulnerability.3

A second strand of literature has looked at the effects of financial inefficiencies, and in particular the effects of financial development, on growth. Though empirical work on this issue began 30 years ago (Goldsmith (1969), McKinnon (1973)), the most compelling evidence is recent work looking across a broader cross section of countries (see Levine and King (1993) and Levine (1997)). This finds a statistically significant, behaviourally important and seemingly causal link between various measures of financial development and growth, even after controlling for other factors. These financial development measures usually include the proportion of credit allocated to the private versus the public sector and the size of financial intermediaries in relation to the economy as a whole. To give an idea of magnitudes, Levine (1997) offers the example of Bolivia. Had Bolivia’s financial depth been equal to the mean for all developing countries in 1960, this would have boosted its growth rate by 0.6% per year thereafter. This is a huge gain when accumulated over time. 

There is also strong evidence of faster-growing countries being associated with larger non-bank
financial sectors and larger stock market capitalisation, though it is more difficult to tell causal stories about these relations. There is likewise no clear-cut evidence on the relationship between financia structure - or example, bank versus capital market-based financing - and economic growth. That awaits further research. But in general this cross-sectional evidence is strongly supportive of financial development enhancing growth and productivity, and in non-trivial magnitudes. 

There is relatively little, if any, literature that weaves together these two strands: the welfare costs of financial instability on the one hand; the welfare benefits of financial efficiency on the other. There is, however, some work exploring the trade-off between the two in the context of financial liberalisation. 
For example, Demirguc-Kunt and Detragiache (1998a) consider these relationships across a panel of countries from the 1980s onwards. They reach three intriguing conclusions. First, there is evidence that financial liberalisation - here identified to be the removal of interest rate controls - materially increases the estimated probability of banking crisis, by a factor of around four. Second, there is evidence of liberalisation reducing financial sector inefficiencies, for example, by lowering the return on equity in the banking sector and reducing its concentration ratio. But third, the effect of liberalisation on 3 Examples include the work on the so-called “third generation” models of crisis. The most well cited example, perhaps, is the theoretical work of Chang and Velasco (1999). This shows that foreign exchange illiquidity alone can result in bank runs which would then lead to the collapse of the currency regime (see also Section 4 below). In the empirical literature, Kaminsky and Reinhart (1999) have found that banking crises are a leading indicator of currency crises which is consistent with (but not conclusive evidence of) the former causing the latter. 
140 BIS Papers No 1
the probability of banking crisis is mitigated if the institutional infrastructure is robust - for example, if contracts are enforceable, there is high quality supervision, an absence of corruption etc. Taking these three findings together, there appears to be some evidence of an important trade-off between financial efficiency and financial stability.4 This trade-off can be improved, however, by improvements in the infrastructure of the financial system, including its prudential oversight by the authorities. This type of analytical framework, linking together financial efficiency and stability with the system’s infrastructure, warrants further theoretical analysis.
In the following sections we discuss all three pieces of the financial stability jigsaw. In Section 2 we discuss some of the techniques the Bank of England uses in the course of its surveillance of financial stability risks. A key issue here is aggregation: how to measure aggregate system-wide financial stability risks from individual institutions’ data. Section 3 discusses the efficiency versus macrostability trade-off in the context of the revised Basel accord. Section 4 discusses the implications of liquidity crises for macroprudential analysis and policy, thereby touching on both the aggregation and stability/efficiency issues. Section 5 briefly concludes by outlining some areas of future research at the Bank of England.

원가구조가 기업경쟁력에 미치는 영향(중앙대 회계학 석사논문, 2004)

※ 메모: 

제3절 원가의 개념

1. 역사적 원가와 현행원가

(1) 역사적 원가 (historic cost)

원가는 전통회계에서 평가개념으로 중심적 역할을 해왔다. 원가는 자산이 취득할 당시의 재화와 용역의 교환가격을 표시하는 것으로 전통적 회계에서 자산은 보통 원가로 표시 되었다. 자산은 취득 당시 일단 운가[원가]로 표시하고 그 가치에 대한 변동이 있더라도 원가 자체는 변하지 않고 감가상각 같은 비용 배분 과정을 통하여 그 금액이 감소되어 표시 된다. 그래서 자산은[의] 취득원가(acquisition costs)를[는] 미상각분의 자산(unamortized portion of asset)을[으로] 표시 되었다.
원가는 원래 특정 자산을 얻기 위하여 포기한 경제적 희생( economic sacrifice)을 화폐액으로 표시 한다고 할 수 있다. 따라서 원가는 발생 당시에 이 원가는 그 자산의 현행가격을 표시 한다고
할 수 있다. .... 자산 평가기준으로 역사적 원가는 전통회계에서 원가기준으로 또 역사적 원가주의로, 원가원칙으로 불리어져 왔다. ... 결국 역사적 원가주의 하에서의 평가는 경제적 실질을 제대로 반영하지 못하여 합리적 자원배분의 실패의 결과를 가져오게 된다.

영국의 Top-down 방식이 역사적 원가에 근거한 방법이나 최근에는 현행 원가의 자료를 사용하는 방식으로 변하고 있다. 대부분의 국가가 요금산정시의 방법으로 역사적 원가에 기초하는데 그 이
유는 현행 재무회계시스템이 역사적 원가에 근거하여 발생주의( accrual basis)에 입각한 시스템이기 때문이다.

(2) 현행원가(current cost)

현행원가(current costs)는 현행입력원가(current input costs)라고도 하는데 이는 평가대상인 자산과 동일한 자산 또는 그 등 가격(equivalent)을 얻기 위해 현재에 시장에서 교환될 수 있는 가격을 말한다. 즉, 최초 구입 당시의 자산의 형태로 현재의 시점에서 구입할 수 있는 자
산의 가격이다. 예컨대, 대체원가가 그 대표적인 예이다.

대체원가(replacement costs)는 “현재상태의 시장에서 동일한 자산을 구입하는데 필요한 화폐액”이다. 현재의 시장에서 기업이 소유한 자산과 동일한 자산을 구입하는 취득원가로 기업이 소유한 자산을 대치한다는 관점에서 대체원가라고 한다. 이 용어의 구분은 같은 뜻이나 유럽의 경우에는 대체원가를 더 많이 사용 하고 영.미 의 경우에는 현행원가를 주로 사용하는 경향이 있다.
이런 대체원가는 재생산원가( reproduction cost)와는 다른 것으로, 현재 소유한 자산과 동일한 자산을 생산하기 위해 소요되는 원가(재료비, 노무비 등)를 추정 한 것이다.

대체원가와 재생산원가는 현재 소우한[소유한] 자산과 동일한 자산이나 새로운 자산을 구입한다는 점에서는 동일하나 대체원가는 구입에 의한 자산 취득이고 기술 변화를 고려하나 재생산원가는 생산에 의한 자산 취득이고 기술변화는 고려하지 않는다. 대체원가는 몇 가지 방법으로 구할 수 있다(Brinkman, Meigs, Moish and Johnson)....


1. Banking Dictionary: Gilt-Edged

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.

2. Dictionary: 


  (gĭlt'ĕjd') also gilt-edge (-ĕj')
  1. Having gilded edges, as the pages of a book.
  2. Of the highest quality or value: gilt-edged securities; gilt-edged credentials.
  3. Very wealthy: “Barricades prevented the curious from coming any closer to the gathering of gilt-edged mourners” (Edward Rothstein).


자료: http://www.answers.com/topic/hyperinflation


The 1920s German inflation

A 1000 Mark banknote, over-stamped in red with 1,000,000,000 (1 billion) mark, issued in Germany during the hyperinflation of 1923
A 1000 Mark banknote, over-stamped in red with 1,000,000,000 (1 billion) mark, issued in Germany during the hyperinflation of 1923

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.

Postage stamps of Weimar Germany during the hyperinflation period of early 1920s
Postage stamps of Weimar Germany during the hyperinflation period of early 1920s

It is sometimes argued that Germany had to inflate its currency to pay the war reparations required under the Treaty of Versailles, but this is only part of the story. Reparations accounted for about one third of the German deficit from 1920 to 1923 (Costantino Bresciani-Turroni, The Economics of Inflation. London: George Allen & Unwin, 1937. p. 93). Nonetheless, the government found reparations a convenient scapegoat. Other scapegoats included bankers and speculators (particularly foreign). The inflation reached its peak by November 1923, but ended when a new currency (theRentenmark) was introduced. The government stated this new currency had a fixed value, and this was accepted.

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.

Models of hyperinflation

A 1,000,000 (1 Million) Lira banknote, issued by Turkey.  The Lira was replaced by the New Turkish Lira in 2005, at 1 million old Lira = 1 New Lira
A 1,000,000 (1 Million) Lira banknote, issued by Turkey. The Lira was replaced by the New Turkish Lira in 2005, at 1 million old Lira = 1 New Lira
A 500,000 Cruzeiro banknote, issued by Brazil in 1993. If exchanged, would be worth R$ 0.18 in 1994. Every few years the currency was renamed, and three zeros dropped from the bank notes.  A 1960s Cruzeiro is now worth less than one trillionth of a US cent, after adjusting for multiple devaluations and note changes.
A 500,000 Cruzeiro banknote, issued by Brazil in 1993. If exchanged, would be worth R$ 0.18 in 1994. Every few years the currency was renamed, and three zeros dropped from the bank notes. A 1960s Cruzeiro is now worth less than one trillionth of a US cent, after adjusting for multiple devaluations and note changes.
A 100,000 Ukrainian karbovanets (used between 1992 and 1996). In 1996, it was taken out of circulation, and was replaced by the Hryvnya at an exchange rate of 100,000 karbovanzi = 1 Hryvnya (approx. USD 0.50 at that time, about USD 0.20 as of 2007). This translates to an average inflation rate of approximately 1400% per month during between 1992 and 1996
A 100,000 Ukrainian karbovanets(used between 1992 and 1996). In 1996, it was taken out of circulation, and was replaced by the Hryvnya at an exchange rate of 100,000 karbovanzi = 1 Hryvnya (approx. USD 0.50 at that time, about USD 0.20 as of 2007). This translates to an average inflation rate of approximately 1400% per month during between 1992 and 1996

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 barter becomes common. Many of the people who hoard gold today expect hyperinflation, and are hedging against it by holding specie. There is, also, extensive capital flight or flight to a "hard" currency such as the U.S. dollar. These are sometimes met with capital controls, an idea which has swung from standard, to anathema, and back into semi-respectability. All of this constitutes an economy which is operating in an "abnormal" way, which may lead to decreases in real production. If so, that intensifies the hyperinflation, since it means that the amount of goods in "too much money chasing too few goods" formulation is also reduced. This is also part of the vicious circle of hyperinflation. ...