#LEBBASES 16 AND 17 WRITE-DOWN ON RAW MATERIALS AND SAVINGS
We continue with devaluation: this makes state products that devalue more convenient. But what are the negative aspects of devaluation? What happens to the raw materials? These will cost a little more, but will we have hyperinflation? A devaluation of 10% or 20% would change nothing. Admitting a devaluation of the dollar, for example, of 20%, we would have a price that goes, for example, from 40 to 48 dollars, but the products on sale have costs that depend very little on the cost of raw materials. If the oil bill increases by 20%, the price of gasoline would increase by very little, a couple of percentage points, first of all for the taxes, then for the costs of transformation and distribution. Eventually the gasoline would vary by 2-3%. After all, oil was at 100 dollars, now it is at 40, but do you see such a different price? Even the products we export (cars etc) have a MINIMUM percentage of their costs dependent on raw materials. Do a Ferrari or a poorer Alfa cost the iron they are made of? this will be one hundredth of the total. Even for products in which the raw material matters more, however, the increase in the raw material will NOT be reversed exactly as a percentage increase in the final price.
What happens to savings with devaluation? Where are the household savings? Half are in real estate. These are not affected by the devaluation, for a trivial reason: have you seen the rooms of the houses disappear due to devaluation? Even if there were market movements, they would involve all real estate, and therefore nothing would change. In reality, it is precisely the stagnation that comes from the lack of growth, or the imposition of taxes on the house, that endangers the value of real estate. Monti by taxing real estate has punished the value of the houses, not the devaluation.
Shares are also a real asset, a share of a company and therefore, in the limit, they revalue themselves due to the greater economic activity linked to the devaluation, especially if the company represented by the share has an international market.
Government bonds and bonds? If the bonds are of foreign states, it is necessary to evaluate whether this foreign country is revalued or devalued with respect to us, but in reality this possibility is usually already priced in the prices BEFORE the devaluation (for example the spread does). Does Chgi hold the internal fixed rate securities? It depends on the rate of the securities and on the inflation that the devaluation can generate, but we just said that this is still MUCH more limited than the devaluation itself, because prices move much less.
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The article #LEBBASI 16 AND 17 WRITE-DOWN ON RAW MATERIALS AND SAVINGS comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/lebbasi-16-e-17-svalutazzzione-su-materie-prime-e-risparmi/ on Wed, 19 Aug 2020 06:00:38 +0000.