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Summary: Our topic today is real interest rates. In this post we discuss two ideas from my published papers. The first is that, viewed through the lens of Asset-First Economics, the right way to define and measure real interest rates is the difference between market interest rates and tangible asset inflation, not the CPI. The second is that central banks using the wrong measure have caused great damage. That’s how the BOJ triggered Japan’s Lost Decade.
Investors who understand these ideas have a real advantage over those who don’t.
Academia.edu has produced the above audio review of one of my academic papers as a simple summary of the main ideas. You can download the original source article from Academia.edu or by clicking the following link. A transcript of the audio file is below. You can find more information on our Asset-First Economics podcast and video series at www.safanad.com. An archive of my written work is available at drjohnrutledge.substack.com.
I hope that you enjoy the podcast. As a teaser, I will tell you that the logic in this paper was the source of the greatest single trade I have ever made. The long U.S./short Japan bet that Deborah Allen and I outlined in our book Rust to Riches in 1989 had a 16.8x return (25% per year) over the next thirteen years. As always, I welcome your questions and comments.
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Dr. John