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To: Earlie who wrote (86223)3/27/2001 2:14:16 PM
From: chic_hearne  Read Replies (2) of 436258
 
Hi Earlie,

I've been looking into my belief that the stock market has become the leading driver of the economy a little more. I was going to do a good write up of my findings with a bunch of statistics for my mania chronicals, but it reminded me too much of a college term paper. Remember the logic riddles we'd do as kids? Here's one for you, let's assume all major averages get cut in half from here. The following would all have to be true if the stock market was not the economy and we were to somehow avoid a serious recession or depression:

1) The 50% of Americans NOT IN the stock market have more spending power than the 50% of Americans IN the market.

2) The markets will have declined an amount equal to 1 years worth of GDP, this will have no material impact on spending.

3) During the bull market, very few quit their job to retire early. Those few that did, they were all smart enough to get out of the way of the bear market. None of these people will be looking to re-enter the job market over the next 5 years.

4) During the bull market, no one, and I mean NO ONE ever pulled as much as a DIME out of the market and used it as if it was income. This means during the bull market, no one pulled out $30K for a new boat or car or home down payment. The economy was fueled entirely by income generated from working. This is why losing the equivalent of 1 years worth of GDP in stock market wealth will have no material impact on the economy and spending. It was just a big pile of paper sitting there and wasn't used for anything, so it can't possibly impact the economy.

5) Those nearing retirement won't be looking to save more. All of them switched to t-bills in the March 2000 top and retirement plans are on schedule.

6) The trickle down effect is a myth. Sure, TRILLIONS of dollars have been lost, but it was all confined to the super mega rich. The super mega rich will keep spending as if they haven't lost TRILLIONS of dollars.

7) Inflation in real estate is just a myth. Homes really are worth 1 million dollars in New York and California because it's so perty there. They were bought and paid for by hard working Americans. They used their $40K a year salary to buy their $1 million mansions.

I could go on and on. You get the point, it's just foolish to believe that the market crash will not have a big effect on the economy. The real question is how bad will it be. I currently believe the market is the leading indicator, not the economy.

chic
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