Calculating Depreciation Velocity (Stick With Me, It's Not Really Accounting I Swear)
The idea of depreciation velocity isn't really a new one (though the term might be). It also may not normally be applied in standard accounting (at least the bizarre CPA Exam World accounting I am familiar with - which bears little resemblance to accounting "found in the wild") but it's something worth looking at moving forward. If we're going to bring integrity back to our balance sheets instead of this bullshit we've called financial reporting for the last... how many years? Want to say 30? Some do. 10? OK. 5? 2? Whatever. The point is not how long we've been fudging our balance sheets but what we're going to do from here on out to make them legitimate again.
So here's the crazy idea: how exactly are we coming up with depreciation? Does it assume economic bubbles in its models? What arbitrary, unrealistic assumption are we coming to?
WTF am I talking about?
Up until about a year ago, I had a 4 year old laptop. Since then, apparently, technology has "maxed out" to some extent and I found a replacement (burned that one out Shopping $$ coming out of Bernanke's ass, ooops) for half the price with four times the memory and 10 times the storage capacity. An important feature. =/ Anyway, are we still depreciating technology with the assumption of a "useful life" that existed in the capital-rich tech past? Not only has RAM maxed out but technological innovation is a money-hungry beast; with capital still evaporating around the globe (as it should, most of it is fake anyway), how can it thrive? I've turned into a deflationista these days and actually get a sadistic thrill out of watching it go up in smoke. Dollar after dollar, Zimbabwe Ben can't print fast enough to keep up with the made-up capital that is disappearing in his very hands.
In a technical sense, deflationista isn't the right word in my case either. This isn't deflation in the traditional sense; I don't believe we have a term for the sterilization of trillions of completely manufactured dollars. I'm not sure if the Fed meant to let accounting participate in its grand inflation scheme but that's exactly what happened, each thug complicit in his own way. Yeah I just called out my industry. It's not the first time; now let's see who comes out arguing and who slinks off into the darkness to restate their financials.
Uh anyway, let's use a different example. Sam Antar pointed to a great one that paints outrageous depreciation perfectly (even for those of us unfamiliar with the particulars of straight-line): the act of driving a car off the lot. Stick with me, kids, it's still not accounting I swear.
The moment you drive a new car off the lot, the car is depreciated. If you get into an accident the second after pulling out of the lot before the ink is even dry on your loan, the "asset" (that's your car) is already valued at less in the dealer's books than it was before your ass got behind the wheel and crashed it.
K, that's all well and good but shouldn't that assume a market for new cars? Bloated inventories? Low demand? Financing problems? $10,000 in depreciation in one month?! That arbitary measure relies on a false market that no longer exists (fine, perhaps temporarily).
So either accounting starts to teach that or, well, we stay fucked here with our bullshit financial statements and worthless cars. Not a win, BTW, if you really need it written out.
You wonder why we're here? Start with the blueprints, damnit.
Financial reform? LOL! When you guys get serious about "reform", tweet my ass, til then I have some shit to do. In the meantime, are the threats working? Didn't think so.