Wednesday, 31 July 2013

Arbitrage: hitting the jackpot under Historical Cost Accounting

Arbitrage: hitting the jackpot under Historical Cost Accounting

The imperfect market exists because of Historical Cost Accounting: actually because of the stable measuring unit assumption.

The stable measuring unit assumption is implemented under HCA under which it is assumed (by Bernanke, Obama, Krugman, Central Bank of China, Bank of England, etc.), in principle, that money is perfectly stable during low inflation (there never was, is or ever will be inflation or deflation); i.e., from 0,0 to 9.999% per year.

Money is and was made because of the imperfect market (lack of perfect information) and the stable measuring unit assumption. Ten million Zimbabweans "burnt" money during gazillions percent of hyperinflation. Many of them with no schooling and no financial education.

Now it is being done by ordinary Venezuelans. See 

How Venezuelan Used ‘Scrape’ to Make Six Times her Salary 


"Burning money" was at a very basic level. It was simply arbitrage during extreme hyperinflation of gazillion percent per annum with no Harvard degree needed. 

Stop the stable measuring unit assumption (not inflation or deflation) and all the above will be history.

Darwin would have understood and approved the above.

Nicolaas Smith

Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.

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