06-03-2009, 09:30 PM
Hi,
Let us dispense with inflation first. A fully balanced economy would have, almost by definition, no inflation. But, if you don't like that, then take my statements to be in the context of an inflation adjusted system.
In reality, even this simple case will have year to year variations. Some years expenses will be above average because equipment needs to be replaced, etc. Other years, expenses will be below average (everything is holding out for a while).
--Pete
Let us dispense with inflation first. A fully balanced economy would have, almost by definition, no inflation. But, if you don't like that, then take my statements to be in the context of an inflation adjusted system.
Quote:In order for investors to receive the same return every year a company needs to keep growing.Only if the return is greater than the profits. Again, coffee shop example. Inflation adjusted to keep it simple. A certain amount of coffee has to be sold at some price to cover all expenses and to pay some ROI. As long as that amount keeps being sold, all the expenses and the ROI are covered. No growth necessary. Inflation adjustment is simply done by increasing the cost of the product to match the increase in the expenses.
In reality, even this simple case will have year to year variations. Some years expenses will be above average because equipment needs to be replaced, etc. Other years, expenses will be below average (everything is holding out for a while).
Quote:Investors who demanded a 10% return on equity the previous year are going to want at least the same return this year.There is the problem. Investors should not *demand* any particular return. It is these, often unreasonable, demands that cause the problem.
--Pete
How big was the aquarium in Noah's ark?