Re: Greenspan's Ponzi Scheme

[Michael Pollak <mpollak@xxxxxxxxx>]

On Wed, 26 Nov 2003, Martin Hutchinson (author of "The Bair's Lair") was
quoted as saying:

> During the latter years of the 1995-2000 share price rocket, Greenspan
> joined with Wall Street shills in proclaiming a "productivity miracle"
> that had moved potential U.S. economic growth onto a permanently higher
> plateau. Had there been such a miracle, then some though not all of the
> higher valuations would be justified; if the S&P 500 Index is selling on
> 20 times earnings, and productivity growth undergoes a secular and
> permanent increase of 1 percent per annum, without a change in real
> interest rates, then the S&P 500 should start selling on 25 times
> earnings (an earnings yield of 4 percent rather than 5 percent.)

Could somebody briefly explicate the math in that last sentence?

Michael