Souze, you and AL have put your finger on what I was dimly grasping at, without me really understanding what I was grasping at. Thank you both!
You are precisely right. Shorts are taking over from banks by creating credit. Actually, longs are the ones creating the credit by making their stocks available to be loaned. So it is very much like the monetary system, which Alan Green$pan and the Federal Reserve manage very, very tightly. Driving many to expletives and fury.
But as you say, totally uncontrolled credit expansion and contraction is being carried out by shorts and longs at their whim. If shorts choose to borrow, they can double the number of shares which exist since both the lender and the buyer think they own the same shares.
Old-timers [those who have been around a year or three which makes people an old-timer these days] will remember my rants about EudoraCoin and Q currency and how QUALCOMM could form a bank of encrypted cyberQ currency and run their own monetary system with their productive assets and intellectual property as the backing of the financial system.
I've raved how the Green$pan dollar will gradually be abandoned in favour of stockmarket based financial assets handled through financial institutions in cyberspace.
Without even thinking about it or understanding it, that is exactly what we are talking about here.
Many of us have our financial assets in an account such as Datek, Prudential, Schwab, Waterhouse etc and operate debit cards, cheques and checks, debts and money market funds.
So the wealth effect can be controlled by we longs and shorts balancing share prices by lending or not lending our stocks according to the prevailing conditions and our view of how markets should be priced.
At the moment, there is a fully organized, market manipulative Federal Reserve Board who explicitly comment on irrational exuberance, wealth-effect [maybe poverty-effect soon], etc and move interest rates and their preparedness to lend to adjust the value of the stockmarket and bond market.
We are very, very small-time market manipulators compared with that consumer-damaging monopoly which does NOT allow free, fair, open knowledge about the market. The Fed meets in secret and announces to a breathless market their latest decision on interest rates and liquidity.
Perhaps we should have an official StockMarket Monetary Board and rather than discuss all this openly, rent the Fed committee rooms and have the meetings in secret. The SEC would go nuts, but it's okay for the government to do it?!!
But your suggestion is exactly what is going on.
I think the importance of market-controlled liquidity will continue to grow and I think that's a good thing.
Let's hope the SEC is reading and has the wit to see that this discussion has added enormously to my and no doubt others understanding of what's going on in the markets and will assist the free, fair and open process of capital markets.
Thanks for to you and AL! Very, very interesting.
Anyone lending their stock could very well be in breach of the rules limiting money creation to the government. Better put your shares in cash until this is sorted out. You won't want the Federal Reserve putting you in jail for illegal currency creation.
Mqurice |
