Press Releases from a Woke Financial World
From the Federal Government:
We have discovered the lowest cost of funding over time and are lowing the future tax burden of all taxpayers while lowering systemic risk in our national economy. We are now focusing on supporting the organic growth of American enterprise
From the State and Local Government:
We are implementing the method that the Federal Government has discovered. We are lowering the future tax burden of all taxpayers and businesses. We are now focusing on supporting the organic growth of local enterprise.
In addition to the lightened tax burdens, we are using this method to lower our interest expenses and risk management costs. We are matching our known real expenses to our expected real incomes, enhancing free cash flow, improved credit rating and higher earnings.
From Savings and Lending institutions:
We now are paying you a positive inflation adjusted return on your deposits, assisting you in building a standard of living for your families that is insulated from the rate of inflation. When you have the need to borrow, we are lending to you in an inflation adjusted format. We will lend at lower rates due to the efficiency of the method, permitting more of your money to enhance your standard of living by lowering the cost of your necessary debts.
From the Insurance and Annuity industry:
We are now providing you with insurance policies and annuities that provide assured funding for your family’s standard of living, no matter what happens to the decline in the purchasing power of the dollar. Our regulatory reporting is greatly simplified with state insurance commissioners relieved of the burden of imprecise forecasting of inflation’s effect on our obligations. The risk of providing our products is reduced and our ability to deliver value and customer service is improved.
For each Family:
We are no longer at risk from the variability and volatility of inflation in our savings for retirement, college education funding and home ownership and insurance. We are focusing more on managing our lives rather than on worrying about things over which we have no control such as what I’ll be able to buy with a dollar down the road.
Today the tools that must be found, understood, used and paid for to manage risks in the quest to employ the lowest cost yet effective risk management is daunting. Many new tools have now been developed to prudently manage the risks and unintended consequences of a number of the first and second generation of derivatives originally marketed as panaceas. The tools with their many variants now have characteristics of Rube Goldberg machines in the process of hatching their own offspring.
There is no need for any of the above entities to be the object (and often victim) of making financial decisions materially driven by the forecasting (guessing) of future inflation. There is no excuse for them to be subject to the fees and cost associated with a less that accurate forecasting. This inefficient and risky process has been seen as necessary for one overarching reason: Future pays and collects have been defined in nominal terms, not real terms.
To draw a parallel, would you live a better life if you are able to deport yourself consistent with how long you live rather than upon someone’s best guess about how long you will live? As with lifespan, we cannot know inflation over time. But, we can live in a financial environment in which future commitments are made consistent with future real purchasing power.
Stability, efficiency and confidence are achieved when a known, inflation adjusted return/payment (real) is the basis of financial activity. What is of importance is the real purchasing power of the currency at any point in time, not what your expectations or plans assumed. Making financial decisions based on inflation forecasting has been shown to perhaps be more effective than deciding by reading the entrails of goats. Even so, it is perhaps equally foolish.
A family breadwinner, a business financial manager and a government financial decision maker all must identify, evaluate and manage risk. Life is a path through risks. To properly manage risks, we must identify which risks effect our lives and which are subject to management. We then must manage the manageable ones as prudently and efficiently as we can. To effectively do this we must identify what is fundamental to ordering our activities and then focus on how best to make the future look like the plan.
For any plan to succeed it must do so in real terms, not relative ones. We need to focus efforts on real results, not nominal results based upon our best guess of what may or may come to pass. If we make financial decisions based upon hopes of relative future purchasing power and pay for imprecise risk management tools in the hope of “coming close” we may survive in good form. If we make financial decisions that focus on real future purchasing power without the need for imprecise inflation risk management tools we have much higher odds of thriving.
If it can be understood that the only rational target for any investment is what it will return in real terms, no financial decision should be made by a rational manager that results in other than the planned real return to the extent business risk has been ably evaluated. The financial decision must start with the necessary real return, not with the nominal return. Fix the real and permit the calculated nominal to float based upon pre-agreed models. Only then will the investment deliver on its potential.
This is the intent and reality of the method that we project to be the basis for the above “Press Releases”. Back testing with 100+ years of Federal Reserve data has us convinced.
Using our proprietary method, first define the terms of a financial activity in constant purchasing power, choose the inflation index/measure to be applied, agree to the positive real return to pay or receive, calculate the quantity of nominal units to meet the regulatory and accounting rules/regulations/laws and enjoy the compounding of benefits. You will then enjoy a stable/known purchasing power instrument and can then enjoy drafting a personal press release. We are Real Return Methodologies (“RRM”). Contact us at: 847-727-9810, 708-442-5680