One way to visualize the damage from ZIRP is to recognize that the spread between real and nominal interest rates is analogous to the spread between rates on default-free and risky debt.
Real estate had nominal negative returns in two of the three periods, and in one period it produced a positive real return.
Real interest rates are basically a function of economic growth and the difference between real rates and nominal rates rooted in inflation calculations.
Yet with property in many places looking so overvalued, that could imply a long period of falling real prices even if nominal prices stay flat.
Real interest rates equal nominal interest rates minus expected inflation, so with CPI averaging about 3.5% this year according to Winmill, at 2-year Treasuries at yielding 0.431%, real rates are actually negative, explained the fund manager.
FORBES: With Gold Set To Peak At $1,700, Miners Like Goldcorp Look Cheap
Nominal and real bonds are both attractive.
FORBES: Barclays Sees Global Econ Heading On "Treacherous Path"
We need to adjust for inflation to take us from nominal values to real values.
FORBES: The Henry Blodget Edition of Lies, Damned Lies and Statistics
The Fed has lowered interest rates so dramatically, that not only are real rates negative, but nominal rates are virtually zero.
How can it be fair that so many people have had their incomes squeezed in real terms - and often nominal terms as well?
Even if our basic theory is that economy is elastic in response to nominal stress and plastic in response to real stress, a sudden change in rigidity combined with a large nominal shock could cause a very large plastic deformation in the economy.
Peoples wages and incomes have to fall in nominal as well as real terms.
If you have 5% inflation along with 3% real growth, you get a nominal growth rate of 8%.
The fundamental difference is that under a fixed exchange rate real income declines must come through nominal income declines.
The pension benefits will be paid in nominal terms but in real terms retirees will not be able to make ends meet.
And after a rare decline in nominal GDP--real GDP plus inflation--during the fourth and first quarters, we expect second-quarter growth rates to turn positive.
In contrast, if prices are falling by 2 percent, then the same 2 percent real wage cut translates to a nominal wage cut of 4 percent.
You get a 1.6% real return, which becomes a nominal 6.6%, which translates into 4% after tax, which in turn becomes a negative 1% after inflation.
One has to do the mental math: nominal return minus inflation is real return.
By suppressing nominal interest rates and pushing real rates into negative territory, the Fed has engaged in financial repression.
FORBES: Ben Bernanke's QE4: Another Step Toward Helicopter Money, And Away From Freedom
This is why I prefer to show expected market returns on an inflation-adjusted (real return) forecasts as well as nominal return expectations.
In order to get real GDP growth figures you collect the nominal GDP figures (fairly easy) and then adjust them by the inflation rate.
Nominal interest rates should reflect real interest rates in a world of zero inflation, if they are to perform their function of allocating capital efficiently.
After that we expect several years of nominal appreciation but probably no real appreciation in home values (after adjusting for inflation, which is likely to rise).
Paying interest on excess reserves will initially sterilize the new high-powered money, without much impact on bank lending and nominal incomes, let alone real GDP growth.
FORBES: Bernanke Administers Another Cruel Dose Of Financial Morphine With QE3
No analyst would claim that the oil sector's contribution to real growth could be reliably measured using nominal dollars with oil prices rising sharply over the last year.
We think the U.S. and ultimately Europe will be headed in the same direction in terms of sustainably low real rates, at first through low nominal rates and later through inflation.
It would oblige Argentina to continue trying to adjust its real exchange rate by deflation (cutting nominal wages and prices in nominal terms), a process which has already forced the collapse of many businesses.
You need to read the speech for the full explanation, but the basic idea is that higher inflation can help push down the real cost of borrowing - the real interest rate - at times when nominal interest rates can't go any lower.
Housing is not gold-like in the sense that gold priced in all currencies tends to rise when currencies decline in value, but the historical correlation between commodity spikes and nominal housing health is very real, and was there during the Bush years for all to see.
FORBES: Book Review: Reckless Endangerment by Gretchen Morgenson and Joshua Rosner
应用推荐