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26 November 2020

Finance and the Real Economy Can't Stay Out of Sync Forever - CoinDesk

Finance and the Real Economy Can't Stay Out of Sync Forever - CoinDesk

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I have spent most of my life residing in places where time moves pretty quickly, kept ticking along by semesters, quarters, deadlines, bills to pay, money to make and errands to run.

Places where a morning coffee could be a 90-minute experience.

Places where middle-aged men sit in lawn chairs outside their homes on sunny Thursday afternoons and sip a beer.

While the West Coast economic hub never rivaled the frenzy of its East Coast equivalents, the city as I experienced it always kept a brisk rhythm.

It is no wonder that people are taking time to savor their coffee?

This is the idea that money today is worth more than the same amount of money tomorrow due to that money’s earning potential.

Those looking to skip forward through financial time shake hands with those content to slow down its passage.

As long as the borrower’s journey through economic time has kept pace – that is, as long as the borrower has been sufficiently productive – then this dance of borrower and lender can be positive-sum.

The borrower can generate an excess return with their leverage and return some of that to the lender in the form of interest.

When economic time is halted, the borrower can no longer create a return, which means both they and their lender go home empty-handed.

This stimulus was meant to enable economic time to keep pace with financial time.

Interest rates, which I mentioned earlier and which serve as the driver of the time value of money, have been kept at, near or below zero by central banks around the world for the better part of the last 10 years. .

Even large businesses that could be well capitalized spent large swathes of cash boosting their own stock prices.

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