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5:14 pm
September 14, 2010
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wspademan
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So in the first year we expect a 1.75% return?
Yes. Keep in mind that we are intending to compete with 1-month CDs. 6-month CDs are currently running less than a 1% return.
Any scribd books I can read?
Wikipedia's page on inflation is quite good.
I do not know of any convincingly definitive calculation mechanism for "true inflation". Let us know if you find one!
What general factors are involved to making this [basing CGB return on investment on true inflation rather than on the prime] sooner rather than later?
- Having a sound measure of true inflation.
- Unknown (and perhaps unknowable) business, regulatory, social, national, and pragmatic factors.
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12:22 am
September 14, 2010
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Richard Todd Chinnock
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Post edited 12:24 am – September 14, 2010 by Richard Todd Chinnock
Some questions:
1. When I go to Wikipedia's definition I see "Since December 17, 2008 the WSJ's U. S. Prime Rate has been 3.25%." So in the first year we expect a 1.75% return?
2. From learning about "hedonic" factors in the CPI I can appreciate the feeling that the consensus understanding of inflation is insufficient in determining real world effects, but I find the current link lacking in authority (even the author dismisses his work in a back handed way). Any scribd books I can read?
3. "As soon as possible after that…"
What general factors are involved to making this sooner rather than later.
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5:31 pm
September 13, 2010
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wspademan
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Post edited 5:33 pm – September 13, 2010 by wspademan
Where can I find some scholarly literature that discusses this?
See the commongoodbank.com page about A Sound Investment and particularly the part about What Return Means. Here are the footnotes that appear at the bottom of that page for links to the references:
1. "true rate of inflation". See, for example, George J. Paulos: "An Alternative Inflation Index", September 08, 2004.
2. "6.3% per year". Gary Burtless, Senior Fellow, Economic Studies, The Brookings Institution, Task Force on Social Security Reform, House Budget Committee: "Risk and Returns of Stock Market Investments Held in Individual Retirement Accounts", May 11, 1999.
Can I get a definition of "Prime"
See Wikipedia's definition, particularly the paragraph headed "United States and Canada".
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5:09 pm
September 13, 2010
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Richard Todd Chinnock
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Post edited 5:14 pm – September 13, 2010 by Richard Todd Chinnock
"The long term average inflation rate and prime minus 1.5 are both about
6%"
Where can I find some scholarly literature that discusses this?
and
Can I get a definition of "Prime"
I have a lead whose thought it is that true rate of inflation is pegged on the Fed interest rate somehow? He was trying to tell me that inflation is at less that 1%. If so, could you go a little into that. He is of the age where he wants to make sure his last ten or so years of work set him up for success in retirement. He really believes in democratic economics and wants to do as much as he can to see it succeed.
In our conversation, though he didn't believe the true rate of inflation could be at 6% a year, he said that if he did get back 6% he would be exceedingly happy as his mutual funds currently are at 2-4%. Further saying, that he could feel confident in investing more of his nest-egg into CGB and democratic economics if that were the case. He is a man of science and as such I will need some literature to send his way on the matter.
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4:43 pm
September 13, 2010
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wspademan
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Post edited 5:20 pm – September 13, 2010 by wspademan
Ultimately, our aim with Common Good Bank is to totally level out the ups and downs — you get back the value that you put in. Did your investments earn 6% consistently over the past 10 years? Most people took a net loss. The long term average inflation rate and prime minus 1.5 are both about 6% — same as the long term average return on the stock market. Of course with the stock market you can win big or lose big.
In the short term, to satisfy the regulators, we need to peg our lending and borrowing rates to the prime (like other banks do), rather than to inflation. So we plan a prime minus 1.5% return for the bank's first year. As soon as possible after that, we want to base the planned return on the true rate of inflation. There is no agreed-on standard for that yet, so there will be some interesting discussions.
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2:27 pm
September 13, 2010
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Richard Todd Chinnock
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I need to have a more complete understanding of this equation. Your attention is much appreciated.
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