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How exactly does the physical deterioration of the capital plant enter into this? A discount rate? I thought we were talking about nominal values?
by generic on Tue Aug 16th, 2011 at 05:05:42 AM EST
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Physical deterioration enters into it because private sector equity is equal to the total value of the physical plant, minus the net foreign debt, plus the net public debt.

Absent persistent fiscal deficits and unsustainable foreign positions, the private sector will still have equity (Robinson Crusoe can still stockpile coconuts). It just won't have any net financial position (Robinson Crusoe can't stockpile pound sterling).

Since the private sector usually wants to stockpile financial assets (particularly sovereign financial assets), to provide a cushion against future expenses in the only asset class that is guaranteed by law to cover certain types of expenses, not allowing it to obtain a net financial position is usually Bad.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 16th, 2011 at 05:27:39 AM EST
[ Parent ]


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