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Strategies & Market Trends : ahhaha's ahs

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To: Ilaine who wrote (1605)	3/17/2001 6:29:26 PM
From: ahhaha	Read Replies (2) of 24758

where did the money go? It didn't go anywhere. Money is an abstraction. There are several easy answers. When the stock market crashed, a lot of it went to money heaven. Stocks rarely trade at their book values. They trade at a higher value because people are reasonably confident that company business activity will continue long enough into the future so that the accumulation of earnings would increase book value higher than it is initially. When the investors defaulted on margin loans, the brokers and the banks couldn't collect. We talked yesterday about the farm land bubble and someone mentioned the Florida land bubble. That money went to money heaven, too, and the banks couldn't collect on those loans, either. When a bank makes a loan there is risk that the loan will fail. They charge some money now to cover the chance the loan will fail later. Most loans don't fail, so they don't charge much for that consideration. The rate of charge is the rate of interest. One of the things I am wondering about is how much money was lost due to the definition of money. None. The founders of the Federal Reserve system believed in the gold standard and real bills doctrine. How much of what you call fiat money and I call money was defined out of existence? None. Another unrelated question intriguing me is whether stock prices in 1929 really were in a bubble. They weren't. In the '50s the DOW surpassed the '29 high. It depends on how one defines "bubble". The Fed thought the economy was in inflation because of the way inflation was defined. No, the FED feared that opening the money floodgates would lead to inflation, so they lowered rates slowly. The way we define inflation now, this was not true. Few can define it now and fewer know what causes it. Practically no one during the '70s had it right. I don't know whether anyone has actually looked at the balance sheets of all the companies traded on the New York stock exchange to see whether the prices were unrealistically high. Relative to what? Expectations? Apparently not relative to the '50s. Apparently so, relative to the '30s. It all depends upon confidence. So the worth of money is intimately connected to psychology and therefore is as ephemeral. There was an expectation of increased future earnings which was realistic - the economy was in great shape. But the Fed defined inflation by the number of loans outstanding and stepped on the brakes. Why do you believe that?

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