Our Version of the Laffer Curve
- tbgidley
- May 25
- 2 min read
The Real Rate of Return (RRM) curve illustrates the theoretical relationship of the Lowest Common Ground (lowest agreed upon FIXED Real Rate of Return) to a GDP growth rate that is non-inflationary.
Where Laffer recognized the value of the 14th century work of Ibn Khaldun, we recognized the value in a non-usury structure, when a Fixed Real Rate of Return is agreed upon.
Our theoretical method does NOT define the correct rate of a Known/Fixed/Stable Real Rate of Return. It does offer the opportunity to utilize the markets to “Find” that Return in any given transaction.
Just as some economists argue that the Laffer Curve maximum revenue point can only be estimated, some argue that a Constant Purchasing Power instrument that is available on the asset side to support and instrument on the liability side is impossible, or it would have been created and utilized before now.
By finding the Lowest Common Ground in finance, which we identify as removing all unnecessary steps and costs, we can improve upon global development and risk management.
The Federal Reserve Bank of Cleveland, and its measure of the “Inflation Risk Premium” in its May 2025 report, determined that the added cost of funding is 0.43759% (seasonally adjusted). The theoretical savings for all market participants should be close to that rate.
We recognize that the many dynamic variables in the continuum and the many variables and choices in agreeing on and measuring of index, or the type of index [inflation, economic output (GDP), or change in the price of a commodity].
The shape of the RRM curve is elastic. This will come from the choices/decisions in the use of the ‘free cash flow generated by the RRM method.
Examples: a) What is the effect on the local currency when sovereign RRM debt is issued?
b) What will the issuer choose to do with the savings?
c) What projects will be chosen to employ RRM structure? Infrastructure, power generation and transmission, lowering tax rates, SDG projects etc.
The tradeoff?
Stay with the current nominal method of financing, which includes the ‘Inflation Risk Premium;’ and accept assets that have additional variability and volatility, pay the additional 43 basis points.
OR
Start migrating to the RRM method with its ability to have a fixed/known/stable Real Rate in both the pay and receive sides to develop an additional asset class based in Constant Purchasing Power.
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