Professor Elam

Monday March 1 2010

Several sites are noting the difficulty of the FED's zero interest rate policy. The real result is that there is simply no safe way to make any return on funds. This is impacting pensions and other sinking funds charged with returning value. And, how does one afford to run a money fund with millions of shareholders if in fact there is no money provided from interest on which to base a service charge? 

We might also add this only benefits the bad decisions of bankers who now pay nothing for their money. 

I make this point in that we will be studying cash flow statements at the end of intermed II. The future of income statements will have them looking much more like cash flow statements. And cash flow will determine who survives the next few years, both in business and in government. 

Japan created the same problems with their life insurers with zero interest rate policies, the companies could not make any money to pay shareholders. Are we Japan?  We provide the chart below with Japan in the middle and the US at the top. Remember in 1989 that Japan was the world juggernaut. Japan and the US have made no net progress since 1999, both markets saw lower lows in the 2008 sell offs.