Hi Jimmy,

Thank you for your criticisms...all of them valid. GDP is not my preferred proxy for a bedrock rate of return either. But then neither is productivity a perfect concept. But then neither is the "risk free rate" a perfect concept. Your comments, as well as Javier's above, are exactly the type of dialogue I hope takes place about the concept of a bedrock expected rate of return.

Several problems exist even with your suggestions. For example, when you say that the RFR can be "locked in" I am assuming you are talking about going long a bond or engaging in some sort of hedge. What about credit risk, reinvestment risk for the stream of coupons, and counterparty risk in the hedge? Certainly not risk-free.

For me the discussion was best framed when I thought about what I can count on no matter the circumstances of a given market era or epoch. That thing I can rely on is the human desire to make one's life better through innovation. While productivity cannot be directly bought, neither can the risk-free rate be directly bought. Instead bonds issued by a powerful economic and military power are used as a proxy for the RFR. The investor then holds her/his breath and hopes that it all works out and that budgets are balanced, countries are not invaded, climates continue in a predictible fashion, and so forth. So my criticism of the RFR is one of nomenclature and the proxies used for the RFR. The most important part is simply to recognize that as long as there is action there is risk and hence there is no such thing as "risk free."

It is my deeply felt preference that a continued, respectful, and intelligent dialogue be sparked about the RFR.

With smiles,

Jason