Morningstar Advisor - August/September 2012 - (Page 52)

Morningstar Conversation Unraveling the Mysteries of Money By Gideon Magnus University of Chicago professors John Cochrane and Harald Uhlig debate money and economic policy during times of crisis. To many people, the way money works and its link to inflation is rather mysterious, despite its obvious importance in the economy. We take it for granted that the dollar bills in our wallets can be exchanged for goods and services, but what determines their value? Why does a Big Mac cost $3.45, and not $345? Most people think of inflation as the price of goods and services rising, but really inflation is about the value of money going down. So, if we want to think about inflation or deflation, we have to think about what gives money its value. Are dollar bills intrinsically worthless pieces of paper that are nevertheless valued simply because everyone believes them to be valuable? Or is money perhaps a government liability, backed by an implicit guarantee that the government will be there, if necessary, to accept it in exchange for something of real value? To get the answers to these questions, we invited two distinguished experts to Morningstar’s Chicago offices on June 8: John H. Cochrane and Harald Uhlig. Cochrane is the AQR Capital Management Distinguished Service Professor of Finance at the University of Chicago Booth School of Business. Uhlig is a professor in economics and the chairman of the Department of Economics at the University of Chicago. Before we get into our discussion about money, we need to define what money is. Money is basically an asset, just like a stock or bond. It is an asset, however, with some particular characteristics. It is both a unit of account and a medium of exchange. There are different 52 Morningstar Advisor August/September 2012

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2012

Morningstar Advisor - August/September 2012
Letter From the Editor
How Much of the Behavior Gap Is Your Fault?
What’s Your View of the Muni-Bond Market?
A Balanced Life
How to Get to Know EMMA
A Strong, Robust Fund Business
Dividend Investing Abroad
Four Picks for the Present
Investment Briefs
Fund Expenses Through the Decades
Autos on Comeback Track
Lessons From the Muni-Bond Rebound
Municipal-Bond Landscape Shifts
Municipal Bonds 101
A Tale of Two Cities
Unraveling the Mysteries of Money
Small Companies Mean the World to Him
The Chinese Art Market and the Origin of Bubbles
The Myth of the Dumb Investor
Stocks That Can Stand the Heat
Our Favorite Mutual Funds
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The War on Savers

Morningstar Advisor - August/September 2012