Monday July 4th, 2022
Founder-led companies
Outliers has a post about collecting letters from companies who are led by their founders. Here it is.
Some of these companies are worth further pursuit.
NGDP good news
The world is now fixated on inflation. One of the most important functions of money is to define a unit of account. It causes lots of problems if units vary with time: imagine if road signs had to be changed every few years because the distance between two towns increased because of ‘mileage inflation’. For money, it’s not so terrible, because function of money as a medium of exchange is largely in the moment. Mostly, people don’t care if you could get a slap up meal in a restaurant in 1960 for ten shillings.
The one exception is loan contracts. If I lend you £100 today in exchange to pay it back in five years time it’s a big problem if in five years time £100 can purchase only half the number of litres of petrol it can today. (Probably I’ll pay you back with some interest, which compensates me for my having to desist from consumption for five years. Probably, that rate of interest will have an element determined by the expected rate of inflation over five years, too, but leave that for the moment.)
If unexpected inflation happens, borrowers are in the happy position of having to pay back less, in real terms, than they expected to. This is a very good thing. When borrowers cannot repay their loans, the economy takes a nose-dive. Lenders’ equity can shrink very rapidly, destroying the ability of those lenders to continue to make loans. Although capital ratios are higher now than in 2007, it would not take that many loans to go sour to tip us back into recession. Inflation fixes that. (Bitcoin doesn’t.)
Wrap
US markets were closed. Nothing much happened.
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