Posted on 04/23/2008 5:53:14 AM PDT by Tolerance Sucks Rocks
The 8 percent figure is very interesting. Thanks.
Deficit spending allows us to borrow money using the earnings of our children as collateral.
I believe the world is beginning to question whether our children will pay the debt, hence the falling dollar. Investors don’t want our dollars.
But here’s what I don’t understand, if people don’t trust our money, they would require a high interest rate on our Government debt (T-bills, etc.). Those interest rates are not high. Why?
America's economic strength came about because they were. Now evidence is mounting that they are getting scared, and are willing to toss the individual over the side through hyperinflation to save themselves from deflation. I'm not sure that's going to work.
On the topic of 8%:
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"For the 363 companies in the S&P that have pension plans, assumptions in 2006 averaged 8%. Let’s look at the chances of that being achieved.
"The average holdings of bonds and cash for all pension funds is about 28%, and on these assets returns can be expected to be no more than 5%. Higher yields, of course, are obtainable but they carry with them a risk of commensurate (or greater) loss.
"This means that the remaining 72% of assets – which are mostly in equities, either held directly or through vehicles such as hedge funds or private-equity investments – must earn 9.2% in order for the fund overall to achieve the postulated 8%. And that return must be delivered after all fees, which are now far higher than they have ever been.
"How realistic is this expectation? Let’s revisit some data I mentioned two years ago: During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3% when compounded annually.
"Think now about this century. For investors to merely match that 5.3% market-value gain, the Dow – recently below 13,000 – would need to close at about 2,000,000 on December 31, 2099. We are now eight years into this century, and we have racked up less than 2,000 of the 1,988,000 Dow points the market needed to travel in this hundred years to equal the 5.3% of the last.
"It’s amusing that commentators regularly hyperventilate at the prospect of the Dow crossing an even number of thousands, such as 14,000 or 15,000. If they keep reacting that way, a 5.3% annual gain for the century will mean they experience at least 1,986 seizures during the next 92 years. While anything is possible, does anyone really believe this is the most likely outcome?"
-- Warren Buffett
The soviet union had government experts running their monetary systems and THEIR economy and look where that got them.
Go back to DU you worthless commie.
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