General Interest Rates, Share Prices and Pensions
Fundamental reports relevant to today's problems and to a better future
So increasing the general interest rate reduces share prices, and reducing the general interest rate increases share prices. The return from shares (dividend payment as a percentage of share price) tends to move towards the new interest rates. As follows:
This sample calculation illustrates the mechanism. However, share prices also depend on other factors such as the risk associated with the investment, and the country's creditworthiness as reflected in currency exchange rates. Profits tend to increase in measure with inflation and profitability also determines share prices.
So share values may increase steeply, and may be kept up artificially, by reducing interest rates and by keeping interest rates low.
As interest rates were reduced and as share values increased, corporations (companies) have withdrawn corresponding 'surpluses' from their company pension funds and added them, or a substantial part of them, to shareholders' profits.
As share prices fall, pension funds can become underfunded. Companies may then be obliged to make up the underfunding to some extent. It appears that the likelihood of this happening may be a factor when companies change, or advocate changing, established pension schemes.
Manfred Davidmann is an internationally well-known and respected scientist and author of a number of books and reports which have had and are having considerable impact. His work usually breaks new ground and opens up new understanding and is written in meaningful and easily understood language. Outstanding is that his work is generally accepted as factual, objective and unbiased.
The Site Overview page has links to all individual Subject Index Pages which between them list the works by Manfred Davidmann which are available on the Internet, with short descriptions and links for downloading.
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